57% of financial institution respondents say fintech is the greatest source of disruption; only 46% say their institution has a fintech strategy.
As emerging technologies disrupt traditional financial services value chains, many institutions are lagging in implementing effective strategies, according to Forging the future: how financial institutions are embracing fintech to evolve and grow - a new report from KPMG that surveys more than 160 financial institutions in 36 countries.
According to the report, banks, insurers and asset management companies believe technologies like artificial intelligence, blockchain and the internet of things are redefining the very nature of financial services. Fifty-seven percent of respondents believe `emerging financial technologies' are the greatest source of disruption today, followed by `growing global regulatory uncertainty' at 51 percent and `new business models' at 46 percent.
Addressing the organizational response to fintech is proving challenging to many institutions. Only 46 percent of respondents say their institution has a clear fintech strategy in place, with 42 percent indicating a strategy is in development and 10 percent having no fintech strategy at all. Of those with a strategy, only 47 percent believe it is well aligned with the challenges posed by fintech.
“We're seeing many financial institutions continue to struggle to build and execute a comprehensive strategy around fintech,” explains Murray Raisbeck, Global Co-Leader of Fintech, KPMG International. “In many cases, fintech innovation is left to individual functional areas, without any kind of overarching strategy across the organization.”
Over 70 percent of financial institution respondents ranked `enhancing customer service' as a top objective for their fintech strategy. `Transforming existing capabilities' was second, with 48 percent identifying it as a key objective.
“The majority of fintech innovation remains focused on transforming the front office and strengthening the customer experience,” says Ian Pollari, Global Co-Leader of Fintech, KPMG International. “This won't go away, however as the sector matures, we also expect to see a greater focus on middle and back-office functions and capabilities. These types of initiatives will drive greater efficiencies - which can also lead to improved customer and regulatory outcomes.”
Partnering, particularly with start-ups, is driving fintech activity, according to the survey. Overall, 61 percent of respondents say their institutions have taken a partnering approach to fintech in the past, while 81 percent plan to partner going forward.
Seventy-two percent of respondents believe fintech start-ups will be the main source of fintech innovation over the next 3 years, so it is not surprising that 81 percent say their institutions are currently partnering with start-ups or plan to in the next 12 months.
Interestingly, a similarly high percentage - 78 percent - say their institutions are, or will be, partnering with other large non-financial institutions. “This approach is being driven by the growing recognition of the need to get to a dominant scale position quickly in particular segments,” according to Mr. Pollari. At the same time, half of respondents say they will employ a `build' strategy - reflecting the plans of many banks and other institutions to build and launch their own fintech services. “Fintech is not the exclusive domain of start-ups and the survey results indicate that institutions also see themselves as being able to launch their own fintech products and services in certain areas,” he adds.
Looking at financial technologies over the next 3 years, survey respondents expressed the greatest interest in big data and analytics and Application Program Interfaces (APIs) - with 67 percent and 55 percent respectively ranking them first or second in interest.
“There is no silver bullet when it comes to fintech success,” notes Mr. Pollari. “The most important success factor is having a fintech strategy that aligns closely to the organization's objectives, has senior sponsorship, recognizes the need to execute on a number of fronts simultaneously, and above all, has a focus on realizing demonstrable value, including customer, cost and regulatory outcomes.”
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To better understand how traditional financial institutions, including banks, insurers and asset management companies, view and are approaching the strategic opportunities and challenges presented by fintech, we conducted a survey of executives with more than 160 financial institutions from 36 countries. The report, Forging the future: how financial institutions are embracing fintech to evolve and grow, also includes insights from in-depth interviews with executives from leading financial institutions as well as KPMG financial services professionals.
The Financial Services sector is transforming with the emergence of innovative products and solutions. This wave of innovation is primarily driven by changing customer expectations and continued regulatory and cost pressures. KPMG professionals are passionate about supporting clients to successfully navigate this transformation, working directly with emerging fintechs through 30 global fintech hubs. KPMG also brings its global fintech insight to financial institutions, helping them fully realize the potential fintech has to grow their business, meet customer demands, and help them stay relevant and competitive.
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