We commonly think of Fintechs as small, digitally-native companies that fundamentally change the financial services market, disrupting and displacing incumbents. But what’s becoming clear is that it’s difficult for small Fintech firms to prove themselves as a viable option for everyday consumers despite the innovation in services. That’s not to say incumbents are able sit back and enjoy their current status – customers are increasingly exposed to new Fintech options that offer convenient, engaging services. This is neither a time for resting on laurels nor disrupting for its own sake. Rather we argue that the future will lie in exploring collaboration between Fintech startups and incumbent players.
In a recent report, co-authored by a team from the University of Sydney Business School’s Digital Disruption Research Group and Capgemini Australia, we shed light on the Australian Fintech landscape and spell out what we term the “Fintech Advantage”. We explain how Fintechs are harnessing digital technologies to offer their customers a better experience when it comes to: price, convenience, access, community, and choice.
Generally speaking, “Fintechs” are start-ups that offer financial services enabled by emerging technologies, such as mobile, cloud, and blockchain. Australia’s Fintech sector is thriving – it is predicted to grow exponentially over the next three years to AUD4.2billion by 2020 (Frost and Sullivan, 2016).
Why is this sector growing so rapidly? We identified three major factors: the pervasiveness of smartphone use in Australia, an increasingly favourable regulatory environment, and an opportunity left by traditional financial institutions who are struggling to catch up with digitally savvy customers’ changing expectations.
Should incumbents be worried then? We argue they should be alert, certainly, but not alarmed. Fintechs might be an attractive option when it comes to hobby investment or everyday payments, but they mostly still lack the scale that customers associate with long-term investments.
More importantly, start-ups don’t have a great reputation for sticking around, and so (for now) incumbents retain an advantage when it comes to perceptions of stability, security, and safety. To maintain this advantage, banks need to continue to improve their customer experience.
Ultimately, both sides of the camp – Fintechs and incumbents – face significant challenges. Large financial institutions in Australia are struggling to catch up with changing customer expectations, particularly when it comes to using digital technologies to offer services that are engaging, convenient, accessible and cost-effective. On the other hand, Fintechs are struggling to increase their reach and secure customer confidence, especially with long-term financial arrangements like mortgages.
This is why, ultimately, it’s not a case of Fintech versus the banks – rather, one side’s weakness is the other side’s strength. Fintechs need help scaling up, while incumbents can benefit from learning how to harness digital technology by keeping the customer at the centre.
The answer? We suggest the development of strategic partnerships that are carefully assessed and appropriately supported. When treated as a way to tackle business problems, while catalysing cultural evolution and innovation, these partnerships can help both Australian Fintechs and traditional financial institutions to weather the oncoming storm of Big Tech companies – e.g. Apple and Amazon – that are set to make a play for significant market share in payments and beyond.
This report is the result of a joint venture between the University of Sydney Business School and Capgemini Australia, named “The Australian Digital Transformation Lab”. The Lab will continue to create insightful reports in response to emerging Australian business issues, in particular digital transformation of business and customer interaction, and of work and organisational processes.