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Banks withstand fintech disruption: Deloitte

By Jessica Yun
3 minute read

Fintech companies have forced banks to rethink their businesses, but they are far from toppling the dominant institutional players, according to a new report.

A new Deloitte report titled Beyond Fintech: A pragmatic assessment of disruptive potential in financial services found that while fintech had “materially changed the basis” and nature of competition within the industry, its has not managed to be successful in overtaking major banks.

“Customer willingness to switch away from incumbents has been overestimated,” the report said.

“Customer switching costs are high, and new innovations are often not sufficiently material to warrant the shift to a new provider, especially as incumbents adapt.”

Report co-author and Deloitte Canada head of financial services Rob Galaski acknowledged that fintechs had set the path for disruption and competition in the industry.

“Fintechs have changed the pace of innovation and reshaped customer expectations across the financial services ecosystem,” Mr Galaski said.

“This, together with the increasing pace of technology, means that incumbents have the potential to improve rapidly — but also face rapid disruption ahead.”

Regarding why most customers had not shifted from their traditional account providers, the report pointed to a number of reasons, such as the importance of bricks-and-mortar branches.

“Customers’ preferences are quickly shifting to digital channels, but physical branches remain a critical component of the banking experience,” the report said.

“Many customers have banking needs which only physical locations can currently fulfil (e.g. getting a same-day wire transfer for a home purchase)”.

Another reason why fintechs had not unseated incumbents was the ability for these large financial institutions to adapt to new technology.

“If customer defections to challenger banks accelerate, incumbents can quickly follow with visually appealing front-end offerings or an online bank of their own,” the report said.

However, the report also said fintechs and technology firms were driving customer expectations of the banking experience.

“Experiences with non-incumbents are raising the bar for banks, as customers expect more value-driven, personalised and seamless service than ever before.

“Incumbent banks, focused on recapitalising their post-crisis balance sheets, are playing catch-up.”

In order to stay relevant, big banks were being forced to “learn lessons” from outside of the financial services industry and take cues from successful apps, according to the report.

“Customers now demand the same immediate access, frictionless experience and low-fee or free offerings from their mobile banking apps as they receive from Uber, Starbucks and other leading applications,” it said.

Successful financial institutions would be those that were able to adapt quickly to the pace of change in the industry and strike up partnerships or acquisitions with fintechs and other non-financial firms, the report also said.