Innovations to reshape power dynamics in financial sector

This is the main conclusion from the report “The Future of Financial Services: How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed”, prepared by the World Economic Forum in collaboration with consulting firm Deloitte.

WEF and Deloitte report on fintech

The report was based on over 100 interviews with industry specialists and a series of workshops, during which CEOs of global financial institutions such as UBS, HSBC, Deutsche Bank, Barclays, Visa, and MasterCard met with global fintech innovators including Zopa, Funding Circle, Transferwise, and Ripple to discuss the future of the industry.

- For several decades, banks and insurance companies have applied similar, unchanged business models that delivered high profits. However, recent developments show these models are no longer as effective compared to innovations introduced by technology firms successfully entering the financial sector - R. Jesse McWaters, lead author of the report, World Economic Forum.
Fintech companies leverage innovative online platforms and tools to obtain client data. Their operations require little capital, allowing them to quickly acquire customers and generate revenue.

Fintech threatens bank models

Credit platforms such as Lending Club, which made headlines with its first major IPO valued at USD 5.4 billion, may compete with banks’ core deposit and lending activities. Similarly, automated, remote investment advisors like Future Advisor contribute to the sharp decline in margins from such services in traditional financial firms. “This has not escaped the attention of banks and insurance companies, which are considering the most appropriate response to this phenomenon. The dynamic development of the fintech sector undoubtedly also affects the Polish financial market,” says Bogumił Wróbel, Senior Manager in the Consulting Department, Financial Services Advisory, Deloitte. “This is particularly significant in the context of persistently low interest rates, shrinking margins, and ongoing consolidation in the banking sector. However, from our dialogue with bank executives, it’s clear that competing with innovative fintech firms while maintaining a traditional cost model has not yielded tangible results so far. Instead, many large institutions focus on developing an appropriate response to these changes, learning from new players, adapting their offerings, and seeking collaboration opportunities with emerging fintechs.”

“This response to change in the Polish market shows banks increasingly seeking competitive advantages through technology, not only to participate in product innovation races but also to significantly improve operational efficiency and effectiveness,” emphasizes Bogumił Wróbel. “Thus, the new approach is no longer limited to more institutions adopting Responsive Web Design, but also involves implementing next-generation workflow systems enabling better task organization and further business process efficiency improvements,” he adds.

The report’s authors highlight that the revolutionary potential of innovation includes huge opportunities to revitalize the financial sector and better align it with client expectations. “Those who succeed will leverage innovation to build entire ecosystems focused on satisfying diverse client needs. Poland is actively participating in these changes — banks operating in our market are winning international awards for innovation, and our banking professionals are increasingly asking for solutions in digital marketing, further automation, and strategic IT platform investments,” underscores Bogumił Wróbel.

Summary

The report “The Future of Financial Services”, prepared by the World Economic Forum with Deloitte, is based on more than 100 interviews with representatives from institutions such as UBS, HSBC, Visa, and MasterCard, as well as fintech companies including Zopa, Transferwise, and Ripple. The authors argue that credit platforms and automated investment advisors are eroding the margins previously generated by banks through unchanged business models.

In 2014, global investment in the fintech sector reached USD 12.2 billion — more than three times the amount from the previous year. The retail services market, at stake in this competition, is valued at USD 6.6 billion. Bogumił Wróbel from Deloitte points out that competing with innovators while retaining the traditional bank cost model has not delivered measurable results so far, although Polish banks are increasingly investing in process automation and IT platforms.