57 percent of global financial institution respondents say fintech is the greatest source of disruption and Australian banks lead their global peers on fintech engagement, collaboration and innovation.
As emerging technologies disrupt traditional financial services value chains, Australian institutions have moved faster than their global peers in implementing effective strategies. This is a key finding of a new KPMG report, Forging the future: how financial institutions are embracing fintech to evolve and grow, which surveys more than 160 financial institutions in 36 countries, including four of Australia’s top five banks.
According to the report, banks, insurers and asset management companies believe technologies such as artificial intelligence, blockchain and the Internet of Things are redefining the very nature of financial services. Globally 57 percent of respondents believe ‘emerging financial technologies’ are the greatest source of disruption today, followed by ‘growing global regulatory uncertainty’ at 51 percent and ‘new business models’ at 46 percent.
While addressing the organisational response to fintech disruption is proving challenging to many institutions, two-thirds of Australian respondents (67 percent) had a clear strategy in place, compared to just 47 percent globally.
“When it comes to embracing disruption to the sector, Australian financial institutions are up there with the leading players,” said Ian Pollari, KPMG Australia’s Head of Banking and Global Co-lead for Fintech. “Arguably, taken as a whole the Australian financial services market has been quicker to adapt to disruption and technology trends. Every Australian respondent to our survey already had a dedicated fintech team in place and had developed frameworks to vet fintechs approaching their organisation.”
“Looking at the market more broadly, there will obviously be some Australian institutions that are too slow to recognise the structural shift that is occurring in the market and they will face serious challenges in the medium-to-long term,” he said.
Australian institutions were more active than their global peers when it came to developing fintech solutions, with 78 percent of respondents planning or already developing capabilities in-house compared to the global average of 52 percent. Similarly, Australian firms were far more likely to be considering acquiring or investing in fintech firms.
“If we look at the actual (not perceived) activities and investments of the five largest financial institutions in Australia – they alone have collectively either directly (or indirectly through venture arms) partnered with, invested in or acquired more than 50 fintech firms over the past 2 years, which is a strong level of engagement with the sector and would only be surpassed by the activities of a handful of global players, namely a few of the US and Spanish banks,” noted Mr Pollari.
Collaboration with start-ups, technology firms and other institutions is driving fintech activity globally, according to the survey – with Australian firms leading in the partnership stakes. One hundred percent of Australian respondents currently use partnership as a strategy (compared to 78 percent globally), with fintech start-ups, tech giants and other non-financial intuitions noted as top targets for partnering.
Commenting on the report, Jonathan Davey, Executive GM Digital and Innovation, National Australia Bank said: “We see tremendous opportunities to accelerate growth by partnering with other scale providers. At NAB, we’ve already established strong partnerships with the likes of REA and Xero. It’s critically important for banks to shift their focus from products and service to gaining a deeper understanding of the customer, and how to help them solve problems through their preferred channel. Working with scale providers is a great way to achieve this goal.”
When it comes to sourcing fintech innovation, the survey shows that it has become a global pursuit for Australian financial institutions – with just one-third saying they focus on the local market. Of the two-third who are looking globally for potential investments, all are actively considering opportunities in the UK and US markets as well as in Australia.
“This survey helps explode the myth that Australia’s financial services giants are not open to engaging with the fintech ecosystem,” noted Mr Pollari. “They are in fact actively looking to invest and collaborate with startups, tech giants, their peers and other institutions. Increasingly, they are taking a global view, as seen by announcements such as Reinventure’s (Westpac) investment in US-headquartered Coinbase and CBA’s acquisition of South Africa’s TYME.”
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To better understand how traditional financial institutions, including banks, insurers and asset management companies view and are approaching the strategic opportunities and challenges presented by fintech, KPMG conducted a survey of executives with more than 160 financial institutions from 36 countries. The report, Forging the future: how financial institutions are embracing fintech to evolve and grow, also includes insights from in-depth interviews with executives from leading financial institutions as well as KPMG financial services professionals.
The Financial Services sector is transforming with the emergence of innovative products and solutions. This wave of innovation is primarily driven by changing customer expectations and continued regulatory and cost pressures. KPMG professionals are passionate about supporting clients to successfully navigate this transformation, working directly with emerging fintechs through 30 global fintech hubs. KPMG also brings its global fintech insight to financial institutions, helping them fully realise the potential fintech has to grow their business, meet customer demands, and help them stay relevant and competitive.
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