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Future of Fintech 2019

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F U T U R E O F F I N T E C H 12 DIGITAL RETIREMENT SOLUTIONS POWERED BY AI We help financial institutions provide an innovative, intuitive, conversational digital user experience that leverages the power of machine learning ENGAGE YOUR CUSTOMERS Give your customers instant access to a holistic financial dashboard that builds on Open Banking to aggregate data from saving, pension and investment accounts ACCOUNT AGGREGATION TECHNOLOGY Choose from a number of key modules to design your own solution that engages, educates and empowers your customers FULLY CONFIGURABLE SOLUTION ABAKA is the UK's first enterprise financial advice and customer engagement platform www.abaka.me Cutting through the noise to win hearts and minds Fintech startups and challenger banks have disrupted the entire nature of financial services, but establishing value, market differentiation and trust is tougher than ever intech leaders have been successful at disrupting the traditional finan- cial services industry, but they can find it hard to win the trust of clients and customers, and prove they offer value. Take the challenger Metro Bank, which has built up more than 1.7 million custom- ers in the UK since it launched in 2010. Ear- lier this year the lender, which prides itself on doing things differently – for instance by keeping branches open seven days a week and offering fee-free transactions in Europe – saw queues of worried customers out- side its branches after an accounting error sparked fears about its finances. As its shares plummeted, rumours circu- lated on messaging service WhatsApp that the bank was facing difficulties and urg- ing savers to withdraw their money from accounts. In fact, Metro Bank was still profit- able and would resolve its difficulties within weeks through a lightning-speed rights issue. But at the time, the fake news prevailed. It's hard to imagine a traditional bank facing such problems, but when it comes to fintech challengers the same rules do not always apply, particularly when they are consumer-facing operators such as digital banks. Customers may be wowed by the perks and flexibility offered by these nimble startups, but they still crave the credibility and certainty the incumbents provide. Rav Hayer, UK fintech lead at PwC, says it's even an issue in the much bigger busi- ness-to-business side of the market, where fintechs sell their wares directly to big banks and financial institutions that know more than the average consumer about the sector. "One of the issues has been if a small organi- sation can offer you a solution to a problem, how do you scale it effectively without it going wrong? The other is that big financial institutions have been so tied up in regulations since the finan- cial crisis, in terms of capital controls or personal data, that it has restricted them working more closely with startups, which don't have to meet such stringent standards," says Mr Hayer. On the whole, however, he thinks atti- tudes are starting to change as regulators become more proactive about understand- ing fintech and banks appear more willing to take risks. In short, they have realised that if they don't work with the market entrants, they could end up being left behind. "New fintech companies have shown consumers what is possible and if the incumbents don't work with them, they won't survive," he says. Martin Stiller, fintech expert at IDC, sees an increasingly competitive fintech market emerging in which the biggest issue will be standing out from the crowd. He says: "Chief information officers at big financial insti - tutions are overloaded with messages from emerging startups pitching their solutions, so differentiation is key." "Banks can use them to build a really unique IT stack based on best-of-breed solu- tions," says Mr Stiller. "The marketplaces do the onboarding too, so integration is easier. A good analogy is the Google or Apple store, which lets you build a unique platform for your phones." At present, most marketplaces are r un by specia lised banking IT vendors that offer a handful of third-par ty solu- tions from f intechs a longside their own to ma ke life easier for clients. These vendors tightly control what appears on the platform, only adding ser vices that complement their own offering, says Mr Stiller. However, he says in future we are likely to see open market- places offering a much greater number of competing solutions. Whatever the route to market, Mr Hayer believes demand for innovative fintech companies is only going to grow. Tradi- tional financial institutions and fintechs will increasingly work together to solve problems in the coming years, he says, as consumers demand better and more per- sonalised financial services. Driving all this is the fear that if incum- bents don't adapt their own offerings, a much bigger threat could end up overtaking them. "Big digital companies have so much val- uable data on their customers and their hab- its, and could quite easily enter the space," says Mr Hayer. "If Amazon, Apple or Face- book started lending money, I think con- sumers would be very much for it. You could even end up seeing one of these giants buy- ing a traditional bank at which point the sec- tor would really change." still surrounds the sector. "We've seen hun- dreds of startups incorporate buzzy technolo- gies like blockchain and artificial intelligence into what they do to inflate their market value, so corporate buyers need to be careful," he says. In addition, institutions are increasingly turning to third-party marketplaces to find fintech services, examples being Mambu, Temenos and Finastra. These portals pre-se- lect good fintech companies and do due dili- gence on them on buyers' behalf. According to an IDC survey, 30 per cent of European banks have already purchased a cloud solu- tion through a marketplace. M A R K E T I N G F Daniel Thomas We've seen hundreds of startups incorporate buzzy technologies into what they do to inflate their market value BANKING-FINTECH COLL ABOR ATION Top reasons why European banks have relationships with fintech companies To cut through the noise, Mr Stiller says fintech leaders need to build direct relationships with banks or promote their services through third-party marketplaces. Promoting themselves through thought lead- ership or by networking at exhibitions, such as Finovate in the United States and Europe, is another powerful way to build awareness. A further route has been the in-house startup accelerators run by banks such as Goldman Sachs and Barclays. Through these schemes, fintech startups get to develop their ideas, network with potential buyers and improve their credibility, not to mention secure growth capital. For the big banks run - ning the schemes, it's an opportunity to meet and learn from groundbreaking new busi- nesses that might help them in the future. Big institutions use other routes to find out about fintechs, too. Research companies, such as IDC and PwC, may advise them on which startups are hot and those that are not, for instance, while tech intelligence services like CBInsights offer useful market information. Mr Stiller points out that many finan- cial institutions now employ fintech experts in-house, so they can make more intelligent investments and see through the hype, which Bloomberg / Getty Images Increase revenues Attract new customers Decrease costs Maintain existing customers Reduce future competition pressure Follow market trends 100% 97% 95% 92% 74% 71%

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