Fintech Nordic Summary How FinTech is shaping Financial ... · 8 PwC Global FinTech Report Threats...

Fintech Nordic SummaryHow FinTech is shaping Financial Services

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69%say that consumer banking is most likely to be the most disrupted by FinTech

7/10indicates that the margin squeeze is the biggest threat

Nordic FinTech ReportMarch 2016

2 PwC Nordic FinTech Report

Foreword Contents

Which part of the financial sector is likely to be the most disrupted by FinTech? 02

Risk of being lost to standalone FinTech companies 05

Threats related to the rise of FinTech 07

Opportunities related to the rise of FinTech 08

In which areas do you see the most important impact to your business from FinTech? 11

The most popular channel among customers 13

2 PwC Global FinTech Report

When was the last time you visited a record store or a travel agency? When was the last time you rented your latest DVD? The Internet has changed many industries from scratch and in this regard the Nordic countries are some of the most advanced. At the intersection of finance and technology lies FinTech that has been accelerating the pace of change at a remarkable rate and is reshaping the industry’s status quo. The Nordic financial market is many times viewed as one of the most prominent when it comes to using the Internet for parts of their operations and the digital revolution has really transformed the way customers access financial products and services. Technology-driven applications in nearly every

segment of the financial sector is now a reality and FinTech is gaining significant momentum causing disruption to the traditional value chain. In fact, funding of FinTech start-ups more than doubled in 2015 reaching $12.2bn, up from $5.6bn in 2014. Cutting-edge FinTech companies and new market activities are redrawing the competitive landscape, blurring the lines that define players in the financial sector and this is just the beginning.

Helena Kaiser De Carolis FS Leader Sweden


Which part of the financial sector is likely to be the most disrupted by FinTech?

According to our survey the financial industry points out retail banking services that are most at risk of disruption within the next five years. Around 70 percent of the respondents say that consumer banking is most likely to go through great changes because of FinTech companies. This view is shared both on a global and Nordic level and there is not much difference between respondents. The past fifteen years retail banking have shown great willingness to change and many predicts that this will continue in the future and even at a greater pace. Some of the main drivers is of course gains in terms of efficiencies but other drivers, technological advances, need to be taken into account. New technology has made it possible for smaller contenders to enter the retail market with relatively low thresholds and costs. Online consumer lending, online-based stock trading, peer to peer lending and crowdfunding are some examples from the past fifteen years that has gained serious market shares where banks previously had exclusive rights.

Our report clearly shows that the further you are from the consumer market, less is the likelihood of disruption due to FinTech. Consumer services are relatively simple, easy to package and not surrounded by the same massive regulations which is the case for services targeted at businesses such as investment banking, insurance and asset management.

This means that development is considerably faster among consumer products.

Within payments and transactions, we see that respondents in the Nordic countries is slightly different when compared to global respondents. Globally our report shows that market participants are more inclined to see big changes the next five years. This might be attributable to the fact that payments and transfers in the Nordic countries in recent years seen substantial changes. Not only has the industry itself made great technological progress but at the same time companies like Klarna, iZettle and WyWallet has begun to compete with traditional operators on a serious level. This is a phase that many markets outside the Nordic region still have ahead of them.

Wealth management is in third-place and also pointed out as part of the industry that is risking the possibility of major future disruption. There is a large global market for these kinds of services and particularly in North America we have seen the entry of so-called “robo advisors”. These new market participants has had major impact and in just recent years attracted considerable sums of assets under management.

69%say that consumer banking is most likely to be the most disrupted by FinTech.


Figure 1: Which part of the financial sector is likely to be the most disrupted* by FinTech over the next 5 years?

55%

31%

9% 9%

27%

35%

12%

17%19% 19%

38%

0% 0%

27%

31%

8%

15%12%

15%12%

35%

15%

22%

73%

69%

Reinsurance

Global Nordics

Fund Transfers & Payments

6%

SME Banking

Fund Operators

BrokerageServices

Investment & Wealth

Management

Life Insurance

Insurance Intermediary

Property & Casualty Insurance

InvestmentBanking

Market Operators

& Exchanges

Commercial Banking

Consumer Banking

2%0

20

40

60

80

Disruption FS sector retreated


22%One-fifth in the Nordic region answers that they do

not know or do not see any part of their business lost to FinTech over the next five years.


Risk of being lost to standalone FinTech companies

1

To a certain extent the traditional financial players behaves a bit ignorant and this becomes obvious when one-fifth in the Nordic region (22 percent) answers that they do not know or do not see any part of their business lost to FinTech over the next five years. Globally, it is even more respondents (one third) which responds in the same way. It remains to be seen but the financial grave yards are full of “Kodak moments”.

But a fairly large percentage of the industry is sober enough to acknowledge where the wind blows. Both global and Nordic respondents indicates (37 percent globally and 44 percent in the Nordic countries) that they risk to lose 1-20 percent of their business to independent FinTech companies over the next five years.

And the impact of FinTech in the Nordic region becomes even more evident since 19 percent answered that they risk losing between 41-61 percent of their business over the next five years. That is more than twice as high in a global comparison and shows that parts of the traditional financial industry takes FinTech seriously and that the situation is not to be underestimated.

Figure 2: What percentage of your business is at risk of being lost to standalone FinTech companies within 5 years?

1%-20% 21%-40% 41%-60%

61%-80% 81%-100% Do not know

Percent age of business lost

Global Nordics

37%

44%

18% 15%2%

19%

15%

17%

7%

15%

8%2%

No risk


Threats related to the rise of FinTech

Financial players, both globally and in the Nordic region, has experienced margin pressure in recent years due to new FinTech players. Almost 7 out of 10 indicates that the margin squeeze is the biggest threat. Lost market shares is placed in second and these two threats seems to be perceived as equal threats both on a global level and in the Nordic region.

Regarding the perception of information security/privacy and customer mobility, we see some differences. Globally the respondents are significantly more likely to see threats in these areas. One possible explanation is that the Nordic market has a robust regulatory system and infrastructure for these kinds of issues. At the same time the industry has presented solutions that has proved to live up to the tough demands from both customers and rule makers which might dampen concerns for different breaches in security.

2

69%7 out of 10 indicates that the margin squeeze is the biggest threat

The Nordic financial market can in many aspects be seen as an oligopoly compared with the significantly more fragmented market we see globally. Certainly, traditional operators in the Nordic region has lost market share in recent decade, but if it is something that is clear in the Nordic countries, it is that traditional players have been very skillful in creating a sluggish market. Global respondents, compared to Nordic equivalents, see to a greater extent increasingly larger customer mobility as a potential threat because of Fintech companies’ progress.


Opportunities related to the rise of FinTech3

In terms of future opportunities from FinTech we see that global players generally are more optimistic than Nordic counterparts. Cost reduction is the most common opportunity due to FinTech followed by differentiation and ability to retain its customers. The latter is somewhat contradictory because one of the big questions is whether the newcomers will make it even more difficult for established companies to maintain its current customer base intact. One should not rule out that the established players actually can be more competitive, provided that they use the new technology in the right way. Among the Nordic actors almost 4 out of 10 think FinTech can contribute to higher revenues. Although there are concerns about further margin pressure because of new technology many has already realized that there is money to be made with the help of FinTech.

Cost reduction is the most common opportunity

“Global players generally are more optimistic than Nordic counterparts”


Figure 2: In your opinion, what are the opportunities and threats related to the rise of FinTech within your industry?

9% 9%

0%

Increase of customer

churn

Global Nordics

Information security /

privacy threat

6%

Loss of market share

Pressure on margins

Other Do not know Additional revenues

Cost reduction

Differentiation Improved retention

of customers

Other Do not know

53%

38%

56%

35%

59%

54%

67%69%

4%

12%

0%3%

56%

38%

73%

58%

62%

46%

4%4%

50%

57%

3%0%0

20

40

60

80

Threats retreatedOpportunities retreated


In which areas do you see the most important impact to your business from FinTech?

4

Both on a global and Nordic level (75 and 65 percent) a clear majority indicates that the most important impact of FinTech will be how you can “affect the ability to meet changing customer needs with new offers”. Furthermore, a relatively large proportion, 4 of 10, believes that FinTech also will increase customer interaction and help build closer (customer) relationships.

The financial sector can be considered relatively heavy on technology and invests considerable resources in development. This may explain the high expectations of the new technology and how it can be used to attract new customers, retain old customers and offer new up-to-date solutions.

Something that is substantially different between global and Nordic respondents is how they view the opportunities FinTech provides for improved data analysis. While over half of respondents (51 percent) globally believe that Fintech will benefit existing data analysis and lead to better risk management, the corresponding figure on a Nordic level is only half as high (27 percent). One possible explanation is that the Nordic financial market is recognized to be conservative and risk averse. Nordic companies are often at the forefront of technological advances while they often have a more conservative view of risk compared with international counterparts. On a global basis, market participants seems to a greater extent have higher expectations on improved opportunities for risk management with FinTech solutions. For sure, Nordic respondents certainly see the opportunities, but with less upside potential since it already has a strong track record regarding risk analysis.

“Meet changing customer needs with new offering – the most important impact of FinTech”


Figure 3: In which areas do you see the most important impact to your business from FinTech?

Efficiently leverage ecosystem and

market resources

Global Nordics

Enavle the business with sophisticated

operational capabilities

6%

Enchance interactions and

build trusted relationships

Leverage existing data and analytics to generate deep

risk insights

Meet changing customer needs with new offering

New approaches to underwrite risk and predict losses

Other

58%

33%

42% 42% 42% 42%

38%

51%

27%

75%

65%

31%

15%

2%

8%

0

20

40

60

80

Importantareas retreated


The most popular channel among customers5

Both on a global and Nordic level, the most popular channel among customers is the companies’ websites. Call centers are still popular among older generations while mobile applications is getting more and more popular as we speak. On the Nordic market responses indicates that user growth over the next five years is by far the highest among mobile applications. More than 9 out of 10 market players see mobile applications as the channel while the company website ends up in second place. Growth in customer visits to physical offices is less than 10 percent both globally and on a Nordic level. For market participants, branches are an expensive channel to maintain while customers increasingly appreciate alternative technical solutions. And these new technical services have become considerably safer and more user-friendly in recent years. These channels are also often significantly cheaper and more efficient, providing even more incentive to the promote them. In a global comparison,

it is clear that the financial sector in the Nordic countries have been more efficient in controlling customer flows from physical offices. On a global level, it is more common to visit the physical offices and almost 4 out of 10 players point out branches as the most popular channel. For Nordic’s part, the corresponding figure is about 2 out of 10.

22%Only 2 out of 10 on a Nordic level point out branches as the most popular channel

Website

67% 37%

Mobile applications

48%

Call center

Most popular channels among customers

E-mail

41%


Figure 4: What is currently the most popular channel of your clients to interact with your company?

Website, web-based platform

Global Nordics

Email

6%

Mobile application Call Center Other Post, mail

42%

38%

8%

67%64%

Branch

47%

41%

46%48%

38%

22%

33%

37%

16% 15%13%

15%

0

20

40

60

80

Preferredchannels to interact retreated


Figure 5: From which of the following channels do you expect the largest growth in usage over the next 5 years?

Website, web-based platform

Global Nordics

0

20

40

60

80

100

EmailMobile application Call Center Other Post, mail

42%

67%84%

Branch

41%

92%

84%

29%

24%

10% 10%

2%

65%

15%

23%

15%

8%

0%

Expectation of usage retreated


Contacts

Sweden

Helena Kaiser De Carolis FS Leader Sweden +46 (0) 709 29 33 11 [email protected]

Johan Jerresand FS Fintech Leader Sweden +46 (0) 709 29 10 02 [email protected]

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assur-ance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. © 2016 PwC. All rights reserved

Denmark

Klaus BerentsenFS Leader Denmark+45 40 53 53 [email protected]

Finland

Jan BäckströmFS FinTech Leader Finland+358 (0) 20 787 [email protected]

Fintech Nordic Summary How FinTech is shaping Financial ... · 8 PwC Global FinTech Report Threats...

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