Analysis: Barclays, MasterCard and RBS are just some of the names to adopt technology that will help them fight off challengers.
The threat posed by fintech companies to banks is being realised by the established players to a large enough extent that they have begun taking significant action to face the challenge.
The vast majority (95%) of traditional banks already believe that they could lose part of their business to fintech companies while the the agile rivals also feel they can take a large chunk away; a portion of around 33% of traditional financial services is the amount they are going for.
Clearly the feeling is that the ability to offer financial products in a digital format is a big enough lure to customers they will flock to these disruptors.
Among the threats posed by these challengers is increased pressure on profit margins, which are already being squeezed among a loss of market share, that’s according to two-thirds of companies surveyed in the PwC report, Blurred lines: How fintech is shaping financial services.
Meanwhile traditional suppliers of fund transfers and payments fear a loss of 28% of their business over the next five years, bankers fear the loss of 24% over the same period.
The threat being posed by the challengers is coming in various forms but mainly it is that organisations such as Atom Bank are more agile, meaning that they can quickly add new features to appeal to customers.
Atom Bank for example has recently moved to offer customer support via machine learning software on its mobile app.
The bank, which gained its license last year, delivers its services through both an app for mobile and desktop computers.
The AI which is being integrated into the mobile app is described as being able to offer near-human customer care.
WDS, which is part of Xerox, is providing the software and will use analytics to capture the context of each customer inquiry, learning from each experience and responding appropriately.
In addition to the machine learning software, WDS is supplying software that will transfer queries to the 24-hour customer support team, just in-case the app cannot fix the problem.
This hasn’t been the only move from the fast moving bank; earlier in the year the company acquired Grasp, a company with gaming expertise, to improve customer interaction.
Traditional banks though have been increasingly busy in trying to match the moves of challenger banks.
RBS for example has recently moved to using an automated financial advice service. The robo-advice will deal with many of the wealth advisory tasks that were previously dealt with by people. The result of this is that the bank has been able to cut 220 jobs in face-to-face adviser roles.
RBS isn’t alone in expanding its digital capabilities and other banks such as Barclays have been expanding their fintech hubs as it looks to move towards global collaboration for innovation and growth in financial technology.
In this example, Barclays is expanding its Rise network physical fintech hubs to Mumbai in India. The idea is to provide the facilities for local entrepreneurs that will help them to shape the future of financial services.
On a UK level Barclays has also expanded its Eagle Labs project, opening it up to 20 different locations across the country.
The work by traditional banks and payments services has seen a broad range of technologies being provided but a focus currently seems focused on artificial intelligence.
MasterCard is another traditional company that is integrating AI into its offerings to customers. The payment company is using IBM’s Watson analytics to help SMB’s to get to grips with big data.
An underlying theme has developed that unsurprisingly sees large technology vendors moving to meet the growing demand from financial services for technology.
Tech vendor disruption
Hitachi for example has created a fintech research lab in Silicon Valley that will conduct R&D on new innovations in blockchain technology and financial services.
This isn’t Hitachi’s first move in the space having launched its Mobile Cash Card Service in December 2015 in Japan. It is designed to enable smartphones to be used like cash cards for financial transactions. The company has also joined the "Hyperledger Project," an open source project that was created by the Linux Foundation.
Along with Hitachi are Linux, IBM, Intel, Cisco and 25 others. The point is that not only have traditional financial services been forced to react quickly, tech companies have as well.
The turmoil created by the rise of fintech is having far reaching consequences and it isn’t just a group of start-ups that are putting the pressure on with handy apps.
The challenge is coming from increasingly stable challenger banks that are being fuelled by established tech vendors which are pushing innovation that is applicable to the sector as fast as possible.
Microsoft for example has been pushing Blockchain-as-a-Service on its Azure cloud, IBM is developing blockchain technology and services that will incorporate existing company technology such as IBM z Systems.
There are numerous players with their hands in the financial services market that are putting the pressure on established players to adopt the technology or get left behind and fail, the choice is an easy one for banks and it is one that will certainly please the tech vendors.