Davos report: traditional financial services must transform to beat fintech

Consultancy Oliver Wyman’s latest report finds that financial services incumbents will need to make clear, strategic choices about where and how they can compete in evolving ecosystem.

Financial services incumbents face a huge transformation challenge as the world digitizes and fintech firms outpace them in terms of growth, according to a new report by global management consultancy Oliver Wyman.

The firm’s State of the Financial Services Industry 2017 report titled, Transforming for Future Value, launched at this week’s World Economic Forum finding big banks and other financial services firms are underthreat from financial technology, or “fintech”, start-ups.

“A plethora of significant new players are emerging – including fintech startups, established payment, technology, and information firms, telecoms, and other providers – and are eyeing attractive parts of the broader financial services industry,” the report said.

The report noted growth in terms of market capitalisation for the 50 largest fintech firms in the past five years has been three times the rate for the 50 largest financial services firms.

Source: Oliver Wyman

It also argued, however, that few of these firms appear willing or able yet to take on the incumbents on the core provision of highly regulated financial services at significant scale – at least at present.

It says the key question is not really whether the financial service incumbents will exist in five to ten years, but whether they will thrive.

“Very few firms have articulated a digital equity plan which establishes how their investments will generate future shareholder value in a digital, modular financial services environment,” said Oliver Wyman’s Managing Partner for Financial Services, Ted Moynihan.

“Thus, while the largest global banks and insurers saw shareholder value grow by an average of 10 per cent per year, major fintech firms both new and old delivered value growth at more than twice that rate – comparable to growth rates of leading tech industry giants,” he added.