Fintech: from challenger to collaborator

22 June 2018

The fintech industry is evolving, with recent innovations focused less on wholesale disruption of financial services and more on integrating their services into the wider sector offering.

Recent fintech developments have been aimed at improving the customer experience, making transactions more transparent, intuitive and instant.

Why the fintech industry is focusing on integration over disruption

"People have become used to platforms such as Facebook and Uber and there is enormous pressure on retail banks and other institutions to offer a similar experience."

As a result of this shift, traditional financial services companies are increasingly approaching fintech startups as collaborators rather than competitors.

According to PWC research, 82 per cent of financial services incumbents are looking to increase partnerships with fintechs over the next three to five years.

The same research showed that rather than being a threat to their business, 63 per cent of bankers see fintech as an opportunity to expand their products and services.

Macquarie Capital's Divisional Director Glen Butler says fintechs can quickly adapt to changing behaviours in a way some traditional financial services firms aren't equipped to do.

“People have become used to platforms such as Facebook and Uber and there is enormous pressure on retail banks and other institutions to offer a similar experience," he explains.


Why the fintech approach has changed

Just a few years ago, fintechs were the emerging disruptors of the Australian financial services sector.

By 2016, Australia had become the largest market for alternative lending in the Asia- Pacific region outside of China, with an annual turnover of $US609.6 million, according to joint research by Cambridge University and Melbourne's Monash University.

But while fintechs have been able to offer an alternative to the banks in parts of the lending market, Butler argues this disruption is unlikely to spread across all areas of financial services.

“The high barriers to entry and scale benefits mean that we are unlikely to see the same disruption in the core banking sector that we saw in areas like media,” he explains.

“Any startup that expects to compete head on with major global organisations such as the retail banks has an enormous challenge ahead of them.”

Traditional financial services operators are looking to build partnerships and joint ventures with fintech startups to capitalise on their innovations.

Only nine per cent of respondents in a recent McKinsey study favoured acquisition as a way of integrating fintech services into their offering.

Australian fintechs changing the landscape

One area where the partnership model is already well established is at the point of sale, where fintechs such as AfterPay - which allows consumers to pay for merchandise in instalments - are partnering with retail banks.

Another fintech, LanternPay, helps process provider payments in the National Disability Insurance Scheme and Victoria's Transport Accident Commission.

LanternPay lets providers see immediately whether a patient is eligible for treatment and allows for overnight payment - a process that once took up to 90 days.

In smoothing out this inefficiency, LanternPay has encouraged participation from providers and given them certainty of payment.

“The best fintech businesses today aren't just about making money,” says LanternPay's Simon Terry. “They are about rethinking the way customer services are delivered. In that sense, they also have a social purpose.”

“By providing customers with greater choice and control, in the process they're making a meaningful contribution to society.”