World Economic Forum sees finance industry in digital firing-line
FRANKFURT: The world’s top banks and insurers are being forced to review their business models amid rapid inroads by nimble “fintech” start-ups, which are reshaping what consumers and businesses expect out of financial services, a report out on Tuesday said.
The report by the World Economic Forum (WEF), the Swiss-based corporate think-tank which runs the Davos summit of world leaders each January, says major disruptions are in store for many once highly profitable financial services businesses.
The study, based on 15 months of interviews and workshops with executives from financial institutions and fintech start-ups, joins a flood of recent reports showing technology is eroding the bulwarks of the financial services industry just as it did in areas such as travel and entertainment a decade ago.
In investment management for instance, so-called “robo-advisors” have begun to automate wealth advisory functions, calling into question face-to-face relationships and proprietary distribution channels.
Exemplifying the trend, UK regulators last week granted a banking license to Atom, a “branch-free, paper-free” institution which customers can access only via mobile phones or tablets, while Amazon.com is expanding a small business loan programme to China, India and Europe.
“Financial technology companies are deploying online platforms, have small capital bases and make strategic use of data to acquire customers and revenues at a fast pace,” said R. Jesse McWaters, lead author of the report.
Rising investments in fintech start-ups globally are helping fuel the challenge to entrenched players, with $12.2 billion ploughed into the fintech sector last year, more than threefold the total of 2013, the report noted.
Bankers who once thought financial regulation was a barrier to new entrants are seeing non-bank fintech rivals go after the most profitable areas of their business, while avoiding regulated markets, said Huw van Steenis, head of European bank research at Morgan Stanley, who contributed to the report.
Meanwhile the plethora of lending platforms will likely make it harder for banks and credit scoring companies to get an accurate view of people’s creditworthiness.
While challenges to banking are more imminent, insurers may face bigger threats in the long-run as troves of online data usher in new types of personalised health, life and drivers insurance, upending the model of mutualised financial risk that has been at the heart of the industry, the report found.
Published in Dawn, July 1st, 2015
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