Despite the rise of fintech companies, they have not yet significantly changed the competitive landscape, as they continue to struggle to overcome the scale advantages of large institutions.

Whilst the rise of fintech companies have undeniably changed the basis of competition in the financial services sector, they have not yet significantly changed the competitive landscape, as they continue to struggle to overcome the scale advantages of large institutions.

This was one of the key findings from the World Economic Forum’s report Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services. According to the report, areas in which fintechs were succeeding include:

• Seizing the initiative by defining the direction, shape and pace of innovation across almost every subsection of financial services, both as standalone businesses and as parts of other companies’ value chains.
• Reshaping customer and client expectations, and setting new and higher bars for user experience. Fintechs are showing that the customer experience bar, set by large technology companies like Apple and Google, can be met in financial services.

However, the report also highlighted the areas in which fintechs were falling short. These include:

• The willingness of customers to switch away from incumbents has been overestimated. Customer switching costs are high, and new innovations are often not sufficient enough to warrant the shift to a new provider, particularly as incumbents adapt.
• Fintechs have struggled to create new infrastructure and establish new financial services ecosystems. They have been more successful in making improvements within traditional ecosystems and infrastructure.

The project team behind the Beyond Fintech report also identified eight areas of disruption that have the potential to shift the competitive landscape of the financial ecosystem over the coming years. There are:

1. Cost commoditisation:

Financial institutions will accelerate the commoditisation of their cost bases, removing them as points of competition and creating new grounds for differentiation.

2. Profit redistribution:

Technology and new partnerships will enable organisations to bypass traditional value chains, thereby redistributing profit pools.

3. Experience ownership:

Power will transfer to the owner of the customer interface; pure manufacturers must therefore become hyper-scaled or hyper-focused.

4. Platforms rising:

Platforms that offer the ability to engage with different financial institutions from a single channel will become the dominant model for the delivery of financial services.

5. Data monetisation:

Data will become increasingly important for differentiation, but static data sets will be enriched by flows of data from multiple sources combined and used in real time.

6. Bionic workforce:

As the ability of machines to replicate the behaviours of humans continues to evolve, financial institutions will need to manage labour and capital as a single set of capabilities.

7. Systemically important techs:

Efforts by incumbent financial institutions to emulate the core capabilities of large technology firms will lead to an increasing reliance on those same large technology firms.

8. Financial regionalisation:

Diverging regulatory priorities, technological capabilities and customer needs are challenging the narrative of increasing financial globalisation and making way for regional models of financial services suited to local conditions.

The Beyond Fintech report is the result of three years of research. It was prepared by the World Economic Forum in collaboration with Deloitte.