PwC is out with a report on the fast emerging global Fintech sector. Financial Technology or Fintech is picking up velocity as regulators and government bodies are just beginning to grasp how new forms of finance are going to alter the financial landscape. The document is published even as Q2 Fintech investment declined by 21% versus Q1.
The report by PwC offshoot DeNovo makes a powerful statement that the underbanked is Fintech’s largest opportunity – that is if politicians and regulators allow a robust ecosystem to grow.
The Fintech researchers targeted five different verticals:
- Banking Services: including SME, consumer, and real estate lending
- Capital Markets: sales and trading, advisory and other services
- Insurance: both commercial and personal
- Investment & Wealth Management: VC, PE, funds, retail wealth management
- Transaction & Payment Services: transfers, payments and remittance
According to the authors, Fintech holds enormous social benefit;
“Fintech is becoming an enabler of economic inclusion. In addressing previously excluded consumer demographics, the industry is in a position to drive innovation and economic and social change. According to the World Bank Group (WBG), an estimated 2 billion adults, or 42% of the global adult population, are absent from the formal financial system. Therefore, even modest strides in achieving economic inclusion present the single largest addressable opportunity in FinTech.”
Massive opportunity remains. To put this into perspective, Denovo points to the trillions of dollars in payments that are quickly migrating to smartphones. This is alongside the impending $30 trillion in wealth that will be transferred to bank-averse Millennials over the next several decades.
The internet, and more specifically mobile connectivity, is a huge catalyst in this seismic shift. Mobile is enabling technology that provides robust access, at a far reduced cost, to the masses. But there are challenges to further market penetration. Barriers include lack of trust;
“One challenge is the public’s adverse view of the financial system. For example, in the U.S., 62% of the un(der)banked population does not consider banks trustworthy.”
DeNovo believes that existing peer to peer models, including emerging insurance alternatives can help alleviate trust issues.
Wealth management is “ripe for disruption”. The additional transparency of management and disclosure of fees are important aspects that will foster growth. Social interaction and sharing play an important role as scrutiny and communication can be almost instantaneous.
“The wealth management industry is quickly finding it will need to adapt to fulfill these changing needs.”
RegTech will play a leading role. DeNovo reports the UKs Fintech leadership will become “increasingly complicated” with the Brexit decision.
“the U.K. has differentiated itself from its peers by building a financial ecosystem with deliberate actions to balance innovation, competition, and regulation in the banking industry. If FinTech firms in the country are suddenly more limited operationally, the U.K. may find growth finally slowing in the space.”
Blockchain utilization is “evolving quickly” and its biggest contribution may be “identity verification”.
The financial industry is massive and Fintech is evolving in ways no one could have predicted just a few years back. Just ask any traditional bank. I will predict that five years forward we will be amazed as to how things have changed.
Read the report below.