Newcomers in
the UK financial services sector are eating into the market share of
traditional banks at an unprecedented rate, according to a new study. While
banks have long tended to shrug off threats from FinTech up-starts, research
has found that FinTechs in particular are forging a quiet revolution in the
banking industry.
As new challenger banks and FinTechs attack business
models across the banking landscape,
newcomers are rapidly making inroads into the sector’s profits by offering
agile, digitalised alternatives. In retail banking, the trend is visible across
the value chain, from customer contact and lending to mortgages, payments and
alternative financing. While this has pushed many banks to team up with
FinTechs in order to head off new, digitally capable competitors, however, a
new survey from Accenture has found they still underestimate
the threat of FinTech competitors.
Accenture’s research attempted to quantify the level of change
in the global banking industry structure, based on more than 20,000 banking and
payments institutions across seven markets, including Australia, Brazil,
Canada, China, the EU, the UK, and the US. The results found that a huge 17% of
industry players in 2017 had only entered the industry over the last 13 years.
This news comes not only because of the boom of new challengers in the sector,
but a collapse of a multitude of previous financial institutions –
something which should send out alarm bells for the surviving traditional
players.
In 2005, there were 24,000 players in the worldwide banking industry,
however the financial crisis and digital innovation have since altered the
landscape significantly. Thanks to an exit of some 8,300 players, contrasting
with an arrival of 600 FinTechs, 1,900 payment institutions, 700 banks licensed
after 2005, and 400 subsidiaries of incumbent banks being created in a bid to
separate risk at major financial players after the 2008 global crash, 19,300
banking sector players exist now.
Global change
These new entrants have accumulated up to one-third of new revenue,
according to Accenture, but the impact of these companies is different
across regions. In countries where corruption continues to take root, or where
state regulation is so stringent that innovation is often stifled, this growth
is notably slower.
For example, in Brazil, newcomers account for only 7% of the market.
Meanwhile, China sees the same level of entries, albeit in a much larger
market. At the same time, however, it is worth noting that despite this
proportionally low saturation, digitised entrants have had a major impact on
the banking sector. Fintech's impact in China has seen Ant Financial, the
digital-payments arm of Alibaba, and WeChat Pay, from the social-media
platform, draw a combined 94% of the country's mobile-payments market with more
than 1.3 billion active users.
The UK, however, remains a leading hub in terms of
FinTech development and implementation. With the Government having launched a
crypto-assets task force earlier in 2018, as well as developing a FinTech
regulatory sandbox, new entrants accounted for 63% of the financial players in
Britain. These players captured nearly 14% of total banking and payment revenue
last year, according to Accenture. This places the segment well ahead of the
US’ increasingly archaic banking system.
Stateside, around 19% of financial companies in 2017 were
new entrants, and made up only 3.5% of the more than $1 trillion in banking and
payment revenue. The researchers primarily blamed this on regulatory hurdles in
the country, which have made it more difficult for new entrants to break into
the established industry, fostering a relatively stable environment for
incumbents. Were these barriers to change, then the US market might more
closely resemble that of Canada, which saw a much larger penetration of its
market by newcomers.
Commenting on the results, the authors concluded, “The
stars have aligned: new entrants are here, material revenue is beginning to
shift, and it is all beginning to happen at increasing speed. Banks must act
before it is too late, rotating quickly to their new model to compete in a
fragmented, highly competitive and open landscape.”
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