Fintechs to drive transformation rather than disruption for banks: Moody’s

first_img Facebook LinkedIn Twitter TD getting new head of private wealth, financial planning Upstart financial technology firms (fintechs) are expected to disrupt, but not displace, the world’s traditional banks, says report from Moody’s Investors Service published on Wednesday. Share this article and your comments with peers on social media James Langton Rise of fintech includes many future risks, FSB says The rise of fintechs highlights a shift toward digital financial services, but that banks will likely remain at the centre of the industry, alongside these new players, the Moody’s report says. In its report, Moody’s acknowledges that the fintechs have enjoyed a head start in the increasing digitization of financial services, as many traditional banks are still grappling with the effects of the financial crisis, restructuring their businesses, and dealing with weak economic growth and low interest rates. Conversely, fintechs have the advantage of low overhead and operational agility. “Fintechs have had some initial successes, primarily in individual business lines, keeping overhead low and operations nimble. But fintechs have yet to prove their resilience through a range of economic and financial market conditions,” the report says. Moreover, banks are responding to the fintech challenge, and are adopting new technologies to improve the experience of their consumers and to stay competitive. “Many banks are well advanced in developing and implementing their own digital strategies. Others are partnering with fintechs to leverage their models and capabilities, fill product gaps and/or appeal to new customers. And others are directly investing in start-ups and incubating others,” the report says. Banks have several inherent advantages in this competitive struggle, according to the report including: large customer bases; sticky client relationships and much greater financial resources than most fintechs. Additionally, they also have well-developed credit underwriting capabilities, and data that allows them to “better price, tailor and target products and services,” the report says. As well, the so-called millennial generation, which are seen as the primary target market for fintechs, are a few years away from being the primary consumers of financial services, the report notes — giving traditional firms time to adapt and retain their position. It is unlikely that the fintechs are going to overthrow the banks, the report concludes, but it does note that there are several forces that could accelerate the industry’s transformation. “Greater movement toward open data, for instance, could unglue one of banks’ strongest defenses by making it easier to switch financial services providers,” the report says. “A more defined regulatory stance would crystalize, and perhaps change, the rules of engagement. And a killer app or the entrance of one or more Big Tech players, with large customer bases and deep pockets, could quickly shift the financial services landscape.” Photo copyright: rawpixel/123RF Fed plays limited role in assessing climate risks for banks Canadian banks to focus on growth, spending and buybacks after strong second quarter Keywords Banking industry,  Fintech Related newslast_img read more

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