original by Graham Schwikkard, Manager at Datta Burton & Associates, a niche management consultancy.

The customers of today have access to incredible technology and information. Connected supercomputers in their pockets are fast-enabling democratisation and disintermediation of services where next generation financial services are built on interactive, mobile-friendly interfaces that emphasise a consistent customer experience through multiple channels. Consequently, this raises the question: Is the financial industry facing an Uber-like moment? Global investment trends would suggest so – venture capitalists are placing their bets on FinTech to cause digital disruption. In 2014, Fintech attracted $12 Billion in investments, three times that as raised in 2013. In 2015, this figure again increased exponentially, by more than double to $30 Billion. While only a small percentage of the profits of an industry with $470 Billion in profits, many believe it will continue to gain momentum. History is littered with examples of established industries overlooking a change in market competitiveness and the sizeable, slow-turning ships, in the form of traditional financial institutions, must not underestimate the speed at which technology and lean companies can spread.

All revenue streams are under threat

Digital disruption is threatening the three main profit sources of banks and examples of well-funded new players are emerging rapidly. Firstly, net interest margin is now competing with peer-to-peer lenders and players utilising novel methods with big data to identify credit-worthy customers. New lenders such as LendUp are also transparent and engaging – giving points for on time payments which can be used for lower future rates.

Although more protected, the second source of charging customers for payment is under pressure too. Paypal has already taken a big portion of the online market and now Square and Apple Pay are encroaching the physical space. The third source of profits is a combination of fees banks charge customers for their services. Simple is a mobile, online bank with no fees that is growing fast amongst millennials. Further, customers can now opt for much lower charges at foreign exchange by using companies like TransferWise. Easy to use, it works by cleverly matching people looking to transfer funds from both countries.

All financial services are under threat

Inevitably, other financial services will soon find themselves under similar intrusion. Big data and machine learning are technologies that do extremely well in information rich industries such as insurance and investment. Firms can use massive volumes of user activity logs and social networks to identify the insurable and attach that to simple interfaces for adjusting their coverage. In the investment and pension fund community intelligent algorithms are replacing active fund managers. However, major financial institutions may often consider these early technologies as unattractive, because their mainstream customers don’t want it and the expected margins are not sufficient to cover their large fixed costs. This creates opportunity for lean, innovative start-ups to establish themselves.

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See original article at http://www.riskafrica.com/fintech-major-disruptor-hitting-shores/ 

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