The asset and wealth management (AWM) sector has so far been slower than other areas of financial services to recognise the threats and opportunities that FinTech companies pose. PwC research last year found that 83% regarded FinTech companies as some form of risk to their business. However, one in six didn’t see FinTech as a threat at all, while more than a third (34%) said they had no engagement with FinTech companies. No other sector of the financial services industry was so sanguine or disengaged.
However, 2017 will not simply be business as usual. For one thing, FinTech start-ups exploiting technologies, such as artificial intelligence and machine learning, are now in a position to take customers from incumbent asset and wealth management businesses. This will require incumbents to adapt quickly and to move away from their legacy systems. Within wealth management, we will see more incumbents investing in digital solutions to improve their internal processes. There is also scope to improve the customer experience. Robo-advisors provide a good solution to do this and those that take a hybrid approach with relationship managers are set to succeed.
"It is all about identifying and mitigating compliance risks to help businesses ease regulatory costs. 2017 will see further upsurge in RegTech start-ups."
The Financial Conduct Authority describes RegTech as “the adoption of new technologies to facilitate the delivery of regulatory requirements”, and is supporting start-ups in this area. In a period of consistently rising compliance pressure – as well as the mounting challenge of managing cyber security in a data- focused environment - such innovation will be welcomed across the financial services industry.
All the more so since many incumbent financial services providers have felt compelled to increase compliance hiring and spending; as these incumbents look to protect their margins and reduce costs, they will embrace new technologies. This year will require the sector to devote resources to regulatory change including MIFID II, PRIIPS and PSD2, as well as to the challenges posed by the UK’s decision to leave the European Union. FinTech companies offering RegTech solutions will find themselves in huge demand during 2017 and beyond. More such businesses are emerging: 4% of applications to Startupbootcamp came from RegTech companies in 2016.
"As the industry navigates its way forward and is trying to address various growth and cost challenges, the digital agenda remains a very important strategic agenda item for the industry"
The banking sector is set for further FinTech breakthroughs in 2017. As PSD2 and the UK’s open banking initiative take centre stage, banks are being forced to provide access to customer accounts through open APIs; competition watchdogs see this as a huge opportunity to increase innovation (and to improve customer choice). At the same time, machine learning, blockchain and internet of things technologies all offer opportunities for banks to improve the way they run, through enhanced risk management, lower costs and greater operational efficiency.
The banking landscape has already changed, with challenger banks emerging across Europe in recent years. New entrants to banking, including organisations such as Tandem, Monzo, Starling and Atom, are showcasing what is possible with emerging technologies and operating with cost-to-income ratios far lower than the incumbents. But while last year was an important period for these challengers, with many releasing MVPs, their share of market is set to increase in 2017, as mobile banking becomes more popular and the new entrants expand their offerings.
"Banking customers will increasingly be attracted to the propositions enabled by open and flexible data. We will see the first huge impact of PSDII throughout Europe in 2017, especially in the UK with very interesting consumer-facing propositions"