Rise of fintechs will reduce incumbents’ market share
Shifting customer preferences towards new technology and a changing regulatory landscape have the potential to "dramatically reduce" profitability and market share for traditional financial services incumbents, according to Deloitte Financial Services leader for Australia, Rick Porter.
Speaking at the launch of the World Economic Forum and Deloitte report, Future of Financial Services, Porter said the Australian financial services sector had reached an inflection point, with the traditional business models of incumbent institutions under threat by the rise of fintechs.
The report examines eleven clusters of innovation that are shaping financial services across investment and wealth management, payments, insurance, deposits and lending, capital raising, and market provisioning.
"Accelerating technology, shifting customer preferences, and a changing regulatory landscape have the potential to dramatically reduce profitability and market share for incumbents," Porter said.
"It is a critical moment for Australia and the financial services sector … transitioning from a product to a services economy."
Porter said financial services was Australia's largest economic sector, worth nine per cent of gross value and contributing more than $130 billion to our Gross Domestic Product each year.
Despite arguing that the Australian financial services sector feels "the heat of disruption the most", Porter said the rise of fintechs represent an opportunity for incumbent institutions that are able to harness new innovations to meet changing customer demands.
"Australian financial institutions are gearing to partner and grow their own fintech capability. [However], customer preferences and behaviours demand innovations and [will] create additional risks and considerations," Porter said.
"The industry response needs to be well thought through, with agile policies and regulatory responses necessary to protect and grow Australia's prosperity."
Deloitte Australia Financial Services innovation lead, Joel Lipman, said the key pressure points that incumbents need to address included rebuilding customer trust and delivering "simplicity" and value.
"The business models of incumbents are under the greatest scrutiny for decades … regulators will need to partner and engage proactively with technology providers and consumers to help formulate products and the rules of the game to the benefit of all," he said.
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