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World Economic Forum and Deloitte - Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services

World Economic Forum and Deloitte Global’s latest report, Beyond Fintech: A pragmatic assessment of disruptive potential in financial services, studies the transformative role of fintech and other disruptive forces on the financial services industry as a whole, and seven sectors including payments, digital banking, lending, insurance, market infrastructure, investment management, and equity crowdfunding.

The report represents the culmination of three years of research into the transformative role of fintechs. It reflects on the impact of innovations on the financial services and uncovers eight disruptive forces that have the potential to shift the competitive landscape of the financial ecosystem.

Three core takeaways highlighted by the study are the following:

1.    Platforms Rising: The rise of customer choice will have profound implications on the design and distribution of products, and will likely force companies to shift roles. Platforms that offer the ability to engage with different financial institutions from a single channel may become the dominant model for the delivery of financial services. The rise of these platforms, such as open banking, will likely reshape financial services from clearly defined organizations to interchangeable entities. This may require that platform owners are capable ecosystem managers, balancing the needs of the product manufacturers with customer demand.

2.    Financial Regionalization: Differing regulatory priorities, technological capabilities, and customer needs are challenging the narrative of increasing financial globalization and making way for regional models of financial services suited to local conditions. Even global firms may need distinct strategies to cultivate regional competitive advantage and integrate with local ecosystems. Meanwhile, fintechs will likely face serious obstacles to establishing themselves in multiple jurisdictions, even as technology lowers barriers to entry. Incumbents may become attractive partners for fintechs seeking to enter new markets as they look for opportunities to rapidly acquire scale.  

3.    Systemically Important Techs: Efforts by incumbent financial institutions to emulate the core capabilities of large technology firms will likely lead to an increasing reliance on those same large technology firms. For example, as financial institutions seek to enhance customers’ digital experiences and unlock data and revenues from customer platforms, they are increasingly dependent on large techs’ cloud-based infrastructure to scale and deploy processes and to harness Artificial Intelligence as a service.

“The circumstances that are now shaping the financial system need all our attention, as they have the potential to revolution traditional models, organizational charts, value chains, the way we interact with consumers and regulators and the way we actually do business. The better we understand where we stand, what are our risks and what opportunities derive consequentially, the more prepared we shall be for what lies ahead for financial services,” said Dimitrios Goranitis, Financial Services Industry Risk & Regulatory Advisory Partner, Deloitte Romania.

In his turn, Andrei Burz-Pînzaru, Partner Reff & Associates SCA, member of Deloitte Legal network, added: “The complexity of fintech challenges on the financial industries requires a holistic approach. It is mandatory to include innovation in our risk assessments, with a particular attention to its legal implications. Otherwise stated, how does technology influence legal restrictions? How will online payments, digital banking, insurance, lending, investment management will shape or will be shaped by new regulations? These are just two of the main questions that we try to offer a response to, anticipating the needs of our clients.”

The report uncovers eight disruptive forces that have the potential to shift the competitive landscape of the financial ecosystem.

1.    Cost commoditization: Financial institutions are embracing new technologies to accelerate commoditization of cost drivers.

2.    Profit redistribution: The location of profit pools within and between value chains are shifting with new technologies.

3.    Experience ownership: Distributors will enjoy a position of strategic strength as owners of customer experience; manufacturers are expected to become hyper-scaled and hyper-focused.

4.    Platforms rising: Financial institutions are shifting to multiple-provider platforms as a channel to distribute and trade across geographies.

5.    Data monetization: Financial institutions are starting to use a combination of data strategies to follow the lead of tech firms in data monetization.

6.    Bionic workforce: New technologies such as Artificial Intelligence will mean major shifts to financial institutions’ workforces.

7.    Systemically important techs: Financial institutions of all sizes rely on large tech firms’ capabilities.

8.    Financial regionalization: Diverging regulatory priorities and customer needs is making way to tailored regional models of financial services.

For further details, please access the report here.