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FINTECH -
DID SOMEONE
REV
CANCEL THE
OLU
TION?
1
ACCENTURE
REVOLUTIONS
This was the view of the Governor of
the Bank of England in a Mansion House
ABRUPT, AND
banking sector.
SOMETIMES THEIR
But has the Fintech phenomenon
already burnt out? After a revolutionary
birth, has it become a victim of cost
ORIGINS REMAIN
containment and lacklustre productivity
throughout the UK banking industry?
And are uncertain political and economic
OBSCURE
conditions muddying the waters further?
Shifts in the balance of global power
appear to be underway Eastern markets
are gaining traction, while the West appears
mired in both legacy and new challenges
to its besieged banking system.
2
SUMMARY
ACCENTURE
There are providing customer experience and access
to financial services and those offering
indications the manufacturing, connectivity and balance
incumbent banking
structures, encourage an infusion of scale-
up capital and create export tunnels to
sector from a slow enable returns from innovation to exceed
3
3
ACCENTURE
PLUS A CHANGE:
WHERE ARE
THE FINTECH
UNICORNS HAS
THE REVOLUTION
LOST ITS PROMISE?
Defining Fintech Payments and peer-to-peer lending
models are two Fintech success stories
success purely in that stand out . The UK led the alt lending
1
Accenture analysis of Pitchbook data
WILL CHINA BE
ACCENTURE
THE CENTRE OF
FINTECH VALUE?
CREATION?
Pundits frequently
highlight the
success of Fintech
in the East, and
point to Chinese
Fintech giants
like Alipay and JD
Capital who have
445 million and 226
million customers
respectively. Is their parent and market demographics (in advantages through product innovation,
GOVERNMENT Q3 Q2 Q1 Friendly
SUPPORT Many hurdles approach
6
Defining Fintech success means
ACCENTURE
DONT BLAME first defining Fintech itself. Its
best defined as the deployment in
THE TECH: A financial service business models
of a set of technologies singularly or
QUESTION OF in combination that have matured in
WHEN AND the last ten years to the extent they
are usable and which can deliver
HOW, NOT IF transformative benefits and savings.
Digital Security
CxO/ Boards journey
in the extended ecosystem Internet of Things
A door to the customers
value chain 7
3
A NEW
more transparent and fairer pricing, and
ACCENTURE
MARKET
by Fintech to flow more meaningfully
towards customers than it can in the
IS TAKING
current market structure. Early signs
are apparent in the collapse in the fees
REGIME
to manufacturing, infrastructure and
connectivity (ROE c 2 percent today) is
predicted, as Fintech tackles the
complexity and surplus capacity embedded
The structure of the financial services in the current structure, and as economies
market is changing, irrespective of of scale are released. The profitability of
the Fintech phenomenon, driven by balance sheet provision will over time
economics, customer needs and reduce with greater pricing transparency
regulatory responses to market failure. driven by fierce competition in customer
While the precise end state of the new relationships and platform business models
structure is still to be defined, it will likely buying services. Regulation (through the
mean the end of vertical integration and a opening of APIs, for example) and cloud
proliferation of new businesses providing technology (through scalable solutions to
customer access to financial services. banking operations) will act as enablers in
these shifts.
These new players will coalesce around the
different specialisations needed for capital Fintech will offer a wide set of tools to
efficiency. Some may be able to justify build new business models within this
integrating different specialisations, but new structure. But it will inevitably take
there will likely be substantially less cross- time for the market to work out how best
subsidisation between specialist business to deploy them. How could this process
models than at present. This will enable be accelerated?
8
CHANGE IN
ACCENTURE
BANKING
MARKET
STRUCTURE HIGHLY
VERTICALLY
INTEGRATED
IN-HOUSE SERVICES
INFRASTRUCTURE
RELATIONSHIP
CUSTOMER
BALANCE
SHEET
CONNECTIVITY
MANUFACTURING
PAYMENTS
SERVICES
HIGHLY HIGHLY
FRAGMENTED CONCENTRATED
PAYMENTS
NEW PLATFORMS SPECIALISED
CUSTOMER PLATFORMS
GAAFA INFRASTRUCTURE
BALANCE
SHEET
HORIZONTAL
SERVICE
CONNECTED
UP THE VALUE
CHAIN
CURRENT STATE
FUTURE STATE
9
ACCENTURE
10
The current trajectory of Fintech
ACCENTURE
adoption shows a relatively slow
progression towards a better version
of the current business model.
Value is thus likely to remain locked
in the existing market structure for
some time. Even though GAAFAs
will continue to dominate customer
relationships and increase pressure
on incumbents, those incumbents
wont have the time and investment
capacity to quickly align themselves
with the new market structure.
11
ACCENTURE
12
2
Accenture analysis of company reports
ACCENTURE
Grow investment to incumbents to an open up their platforms
and is a case of good regulation that aligns
required to encourage banks to reinvest
savings into Fintech solutions. Investment
help Fintechs move with market forces. Smart incumbents from in-house VC funds will also be required
20142. Keeping a supply of dry powder to and strengthen Worldpay, its success raises the question
how many other processing category killers
reinvest in new technologies should be a top
priority for banks, both to create effective
export bridges could be released from vertically integrated
domestic banking models to earn revenue in
partnerships by investing from internal
Making the UK banking market more efficient a wider field?
expenditure, and to benefit from new revenue
and competitive in and of itself is a zero-sum
streams unlocked by Fintechs through their
game. To create new revenues, new business Banks have tried in the past to monetise their
own VC funds.
models need to work in other geographies, internal software in this way. Most attempts
either as platforms or B2C businesses. The have been half-hearted and the spin-off
Other forms of funding, such as non-
former option will likely be the more feasible entities not given enough freedom or capital
financial-services-related private equity,
given local needs and brand affiliations in to dominate a sector. There is no reason this
could offer a potentially large cash injection.
each country. cannot be successful - Amazon created AWS
But this brings risks for Fintechs, who could
from its core business and it now dominates
lose control of their businesses by agreeing
Gaining access to new revenues from public cloud infrastructure. To make such a
equity stakes with partners with little or no
international exploitation is just as important move around bank platform software would
experience of their technology. Further, many
to the success of Fintech as supply-side require a significant cultural shift for internal
private equity funds invest through a mix
factors like talent, access to capital, and bank IT functions many of whom still accept
of equity and leveraged debt which may be
domestic regulation. The UKs Fintech bridges their role as a silent back office support
unattractive to start-ups and scale-ups. These
with China, Singapore and Australia are a function.
options will also be out of reach for Fintechs
step in the right direction. But there are
who fail to meet the minimum valuation levels
clearly other large markets, with significant Acquiring a reputation as a hub for a
needed from private equity investors.
amounts of unmet financial service needs, particular Fintech expertise could also be a
to be tapped. Launching Fintech-enabled sound market-level approach. Israels brand
Ensuring investments can be exited is also
customer relationship businesses in high- as the global centre for security technology
crucial. Effective IPO and capital markets are
growth markets like Mexico, Russia and China will no doubt lead to a significant external
key to this, and will be highly scrutinised by
could be a valuable strategy. Its been revenue stream, and this model could be
investors, particularly as the impact of Brexit
tried many times before with legacy applied elsewhere. Countries would need
is felt. Maintaining an infrastructure capable
technology Fintech could be the key to first define their specialisations and then
of raising the sort of exit prices expected
that makes it viable. work out how to create export opportunities
from investors should remain a high focus for
for them by combining research with applied
regulators and market-makers.
Incumbent banks remain the key channel use. Nations with strong and outward-facing
for scaling, exporting and realising Fintech research and education systems will be well-
PSD2 will give Europe a comparative
value. So more ambitious strategies are placed to exploit this opportunity.
advantage over other regions in forcing 13
2 BILLION
ACCENTURE
CUSTOMERS
WAITING FOR
FINTECH
Personal banking
revenues $110Bn
at 100% utilisation 2014 Potential
0 10 20 30 40 50 60 70 80 90
Asia Pacific
There are currently around 2 billion its partners are aiming to provide financial
unbanked people worldwide3. Most either transaction services to approximately
live too remotely to have access to a bank half of these people by 2020. Mobile
or are excluded by the cost of holding an and internet-based services are clearly
account. They include approximately 90 one way of doing this while only about
percent of the migrants around the world, 20 percent of the populations of UN-
the number is now approaching 300 classified least developed countries have
million, many of whom are in great need access to a financial services account,
of financial services and are often highly over 60 percent have access to a mobile
financially educated. The World Bank and phone or the internet at home.
14
3
Accenture analysis of World Bank and UN figures
ACCENTURE
CONCLUSION:
AUX ARMES
CITOYENS!
The Fintech already happening, and it could
and should expand further. The spectre
revolution offers of Brexit is casting an uncertain
15
ACCENTURE
THE
Senior Managing Director
UK & Ireland Financial Services
AUTHORS
julian.skan@accenture.com
EVE RYAN
Banking Research Lead
UK & Ireland Financial Services
eve.ryan@accenture.com
ABOUT
ACCENTURE
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of services and solutions in strategy, consulting, digital, technology and operations.
Combining unmatched experience and specialized skills across more than 40 industries
and all business functions underpinned by the worlds largest delivery network Accenture
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16 the way the world works and lives. Visit us at www.accenture.com.