The Fintech Advantage: Harnessing digital technology, keeping the customer in focus

Abstract

Australia’s Fintech industry is thriving. Fintech start-ups are enjoying investments from both venture capitalists and traditional financial institutions who recognise the importance of digital ways of doing business. Incumbents are realising that existing and emerging enabling technologies – most notably mobile and cloud – are significantly changing customer expectations about what constitutes convenient, high quality service. This awareness does not however automatically translate into action, as it can be difficult for incumbents to adapt legacy systems to cater to emerging customer needs. As a result, Fintechs are not merely taking advantage of the gaps left by traditional players, but are setting up new and innovative services that are changing what customers expect over time. Initially operating only in transactional offerings, such as payments, the Fintech sector is increasingly emerging as a competitor in more expertise-based areas of the financial services ecosystem, including loans and investments. Traditional firms that were at times wary of these new players are now looking to maximise their return on innovation investment by buying proven Fintech solutions. Combined with growing attention from government, it would seem that Fintech companies are now well placed to make the most of their increasingly favourable regulatory environment. In this report, we take stock of the Australian B2C Fintech landscape by first providing an overview of the existing financial services ecosystem. We explain how Fintech has been successful in harnessing digital technology to cater to customer needs. We’ve identified 5 key areas where Fintechs offer value to their customers by harnessing digital technologies: price, convenience, access, choice, and community. Incumbents however retain the advantage on trust – which we define as the perception of stability, security and safety. This perception helps incumbents compete in long-term financial activities such as mortgages, because longevity is something that Fintech companies have yet to prove. As a result, gaining customer trust can be a key motivator that drives Fintechs to collaborate with incumbents. Finally, we offer practical suggestions for how Fintech and incumbents can develop a partnership, throughout the innovation process and effectively work together to gain a combined advantage. Although these partnerships seem full of promise, we recognise the challenges that incumbents face when partnering with start-ups and offer advice on how to evolve culture. Ultimately, this report looks at how incumbents can work with Fintechs to harness digital technology, always keeping the customer in focus, to differentiate themselves in the digital age.