Edward Dodge – Senior Account Manager at Spreckley
2016 will be remembered as a year of revolution. From the UK’s decision to leave the European Union in June to the shock election of Donald Trump as President of the United States in November and other populist movements underway in the continent, the status quo has well and truly been upended. But away from the political stage, a quieter revolution has been gathering steam. Money and sex have always been synonymous but 2016 was the year the financial services sector finally got sexy and that’s thanks to fintech.
The term fintech (a portmanteau of financial technology) was first coined back in 1993, but it’s only relatively recently that the term has come into its own and that fintech companies have started to transform financial services. Entirely focused on digital financial technology, fintech is revolutionising the way that we pay for goods and services, transfer money and send it overseas and the way that we manage savings and investment products. Fintechs go beyond offering old products in a new guise and develop completely new services, such as peer-to-peer lending – making some established offerings obsolete and shrinking the profitability of the traditional banking sector in the process.
A favourable regulatory environment in the UK, the proliferation of mobile devices, advances in technology and connectivity, and a growing distaste for the big banks have rendered the sector ripe for disruption. While established financial services firms could once simply acquire disruptors to counter threats, that’s often no longer the case and major players are having to compete with single headcount start-ups.
But the path to success in fintech is not without its obstacles and 2017 will bring new challenges – chief among them, cybersecurity. SWIFT and Tesco Bank are just two high profile examples of financial services firms that fell foul to hackers this past year and it’s safe to say that they won’t be the last. By their very nature fintechs are highly attractive targets for hackers. For obvious reasons, financial data is some of the most appealing to criminals, and while that’s clearly a problem for everyone in the industry, fintechs, unlike their larger counterparts, often lack the clout, resources and know-how to do something about it.
Moreover, the incumbents aren’t taking the fintech revolution lying down. They are throwing everything at defending their home advantage, and the odds may be in their favour. A recent study by consultancy firm Outthinker challenges the conventional wisdom that only small companies can innovate, stating that…
“Incumbent companies have been the innovators that have mattered most, and if they manage the barriers to innovation, and leverage the unique assets and capabilities that they bring to bear, they can continue to drive organic growth and unlock internal entrepreneurship (“intrapreneurship”), and thereby impact the world.”
Given what’s at stake, there’s every reason to suggest that incumbent financial services firms will weather the storm of disruption and, indeed, become leading agents of it in 2017. Time will tell.