Increasing FinTech partnerships revealed in global survey likely to be replicated in the Channel Islands, says Guernsey partner

The majority of global financial services companies plan to increase FinTech partnerships as 88% express concern they will lose revenue to innovators, according to a new PwC global report, Redrawing the lines: FinTech’s growing influence on Financial Services. 

A large majority of global banks, insurers and investment managers intend to increase their partnerships with FinTech companies over the next 3 - 5 years and expect an average return on investment of 20% on their innovation projects.

Commenting on the report findings, which were released today (Thursday 6th April), Nick Vermeulen, Partner at PwC CI, said:

‘Given the leading role that financial services play in the Channel Islands, this report is thought-provoking in its assessment of the role of FinTech and how the global finance industry is responding to its growth and the competitive  threat it poses.  The Channel Islands has also invested in the digital sector and considering the strength and depth of the finance industry offering, it is highly likely that we will witness increasing partnerships between finance and tech companies, with the opportunity for further innovation, a quality that firms in both jurisdictions have demonstrated time and again.’

Key findings in the global survey include:

• More than 4 in 5 (82%) financial services companies plan to increase FinTech partnerships in the next 3-5 years
• 88% are concerned they will lose revenues to standalone FinTech companies. On average, global firms believe almost a quarter (24%) of their revenue is at risk 
• An average ROI of 20% on FinTech related projects is expected by financial firms.

The report, drawing on a survey of over 1,300 respondents globally, shows clear signs the finance industry is getting to grips with innovation. One driving factor behind these partnerships is an increasing fear within the industry that revenue is at risk to standalone FinTechs, with 88% of financial services respondents seeing it as a real threat (83% in 2016). On average, up to 24% of revenue is thought to be at risk. 

As a result, a mutual understanding is emerging between the two parties - FinTech startups require the access to capital and customers provided by incumbents, and big financial firms are starting to understand how FinTech could be the key to finally overcoming legacy technological and customer communication issues. 

Blockchain is coming out of the lab

• Over three quarters (77%) of global financial services companies plan to adopt blockchain in live production systems by 2020
• Funding in blockchain companies increased 79% year-on-year in 2016 to $450million globally
• Almost a quarter (24%) of global financial institutions say they are now ‘extremely’ or ‘very’ familiar with blockchain technology.

The report makes it clear that blockchain is moving from hype to reality and real life use cases are set to become much more common. With the potentially huge back-office cost savings and transparency gains blockchain can provide, the technology will receive increasing investment as finance firms explore its ability to ensure they are fit for future growth. 

Survey respondents believe the most likely use cases for blockchain will be payments, funds transfer and digital identity management. Opinions around use cases for blockchain vary by country, often driven by the level of development in the technology in each geography. Respondents from the United States cite funds transfer infrastructure as the most likely business use case, probably explained by the maturity of blockchain investment already undertaken there. 

Nick Vermeulen added:

‘The authorities in both Islands have made it clear that they appreciate the potential of  blockchain technology and with blockchain products already launched by Channel Island service providers,  the jurisdictions are also well positioned to capitalise on the growth in blockchain investment globally.’