GlobalData Plc

Fintech companies are beginning to make their mark on the global financial services market, leading to intense competition among fintech firms as well as established providers.

Five years ago, the financial services industry watched disruptive companies such as Uber and Airbnb revolutionize their respective industries through the power of technology, and prepared for a similar revolution in financial services. So far, the promised disruption of consumer financial services through technology has yet to materialize – banks and card schemes maintain their dominance of consumer financial services through a combination of inertia, brand trust, and scale.

Fintech companies may not have been able to eat incumbents’ lunch (yet) but their impact has been extensive and dramatic nonetheless. In growing sectors such as peer-to-peer lending, robo-advice, pay-as-you-go insurance, and online payments, new players have been able to build strong positions through purpose-built products. In the absence of entrenched incumbents with large customer bases as competition, fintech companies have come to define these emerging sectors.

Fintech firms are the engines of innovation in financial services products and infrastructure, with banks generally too bound by legacy IT infrastructure, regulatory requirements, and their own business cultures to create disruptive products and services. The strong brand trust and large customer bases held by the incumbents, however, mean that fintech companies find it difficult to gain significant market share when launching under their own brands. As a result, partnerships are essential to both sides in sectors where banks dominate – for banks to gain an edge over their competitors as much as for fintech companies to reach wider audiences.

The case of Paytm, a mobile wallet operator in India, demonstrates the enormous potential of fintech both as a disruptive force and as an investment opportunity for incumbent financial services players. The Indian market is heavily reliant on cash at the POS (due to lack of access to cards and low penetration of POS terminals), but since the government revoked the legal tender status of INR500 and INR1,000 notes, the mobile payments market has grown enormously to replace cash use. Paytm (and other brands) have been able to take advantage of a gap in the market not yet filled by banks as a result of this change. Further, Alipay parent company Alibaba, seeing the growth opportunity in the market, greatly increased its stake in Paytm in 2017 – demonstrating the opportunity for incumbents to improve their own positions by investing in fintechs.

Fintech is coming to define the modern financial services industry, and the crowded nature of the market means that pinpointing the best innovations to invest in or partner with is difficult. To find the next market disruptor, or the next essential partner, requires insight into trends in fintech investment across the globe. GlobalData’s new Smart Money Analytics tracks 100 of the top investors and over 1,000 funding rounds to pinpoint where the smart money is being invested in fintech. This insight, combined with tracking and profiling of the alumni of the top incubators and accelerators worldwide, provides GlobalData’s Fintech subscribers with the information needed to stay ahead of the competition.

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