Almost all banks, 95%, believe part of their business is at risk of being lost to standalone financial technology companies according to a PwC survey.
The report released today, ‘Blurred Lines: How FinTech is Shaping Financial Services’, found that 83% of respondents from traditional financial service firms believe part of their business is at risk of being lost to standalone fintech companies, rising to 95% for banks. PwC received responses from 544 chief executives, heads of innovation, chief investment officers and senior management involved in digital and technological transformation across financial services in 46 countries.
“Incumbents believe 23% of their business could be at risk due to further development of fintech,” added the report. “What’s more, fintech companies themselves anticipate they could capture 33% of the incumbents’ business.”
PwC found that the highest fintech priority for banks were solutions they can easily integrate to improve and simplify operations.
“Open development and software-as-a-service (SaaS) solutions have been central to giving banks the ability to streamline operational capabilities,” said the report. “The incorporation of application program interfaces (APIs) enables third parties to develop value-added solutions and features that can easily be integrated with bank platforms; and SaaS solutions assist banks in offering customers a wider array of options – which are constantly upgraded, without banks having to invest in the requisite research, design and development of new technologies.”
TransFICC, a London-based fintech firm, has launched this month with the aim of using open source technology to allow banks to easily connect to the many new venues expected to launch under MiFID II and to centrally collect data in this new fragmented market for fixed income and derivatives. Banks will be able to connect to the TransFICC API and the fintech firm will be able to add new venues, and their associated data feeds, overnight.
Steve Toland, founder of TransFICC, told Markets Media that MiFID II, the new regulations covering European financial markets from 2018, will force transparency in fixed income and derivatives as trades will have reported in real-time and audit trails from multiple venues will be required to evidence best execution. TransFICC provides a connection to multiple venues but does not include a matching engine or risk management functions.
Toland said: “We are packaging three core open source technologies in a managed service to connect to new MiFID II venues as more trading moves from voice to electronic.”
The TransFICC team have experience of building financial technology at LMAX Exchange, the London-based foreign exchange MTF. Toland said TransFICC’s technology will include Disruptor, which was released by the LMAX team with an open source licence to allow much faster processing, and high performance messaging.
“We are working with two banks to build the service,” added Toland.
The PwC survey said the most widespread form of collaboration between financial services organisations and fintech companies is joint partnership (32%) which allows incumbents to use new technology within a safe test environment and bring solutions or products into the market more quickly.
“Given the speed of technology development, incumbents cannot afford to ignore fintech,” added the report. “Nevertheless, a significant minority rather than a non-negligible share (25%) of survey respondents do not liaise with fintech companies at all, which could lead to an underestimation of the potential benefits and threats they can bring.”
Steve Davies, EMEA fintech leader at PwC, said in a statement: “PwC estimates within the next there to five years, cumulative investment in fintech globally could well exceed $150bn (€135bn), and financial institutions and tech companies are a stepping over one another for a chance to get into the game. As the lines between traditional finance, technology firms and telecom companies are blurring, many innovative solutions are emerging and there is clearly no straightforward solution to navigate this fintech world.”