Large financial institutions need to tie up with fintech startups to stay relevant

The results of a study done by PricewaterhouseCoopers is an eye opener. No wonder BlackRock’s Larry Fink is focused on emerging financial technologies.

As per the results of a new study done by PricewaterhouseCoopers, large financial institutions across the world could lose 24% of their total revenues to advances made by financial technology companies in the next three to five years.

88% of the 1300 executives from the financial industry who have been polled said they feared their business was at risk to standalone financial technology companies in areas such as personal finance, payments and money transfers said the study.

In the banking sector, consumer services such as personal loans, were seen as a high risk.

PwC’s annual Global FinTech Report comes in the wake of large financial institutions facing growing competition from a cohort of fintech startups that offer better digital services to customers, in areas ranging from financial advice to life insurance.

To counter this threat, financial institutions have increased their collaboration with these fintech companies, with 82% of the respondents saying partnerships with tech-savvy firms is likely to pick up speed in the next three to five years.

In JPMorgan Chase & Co’s annual shareholder’s letter, the company’s chief executive, Jamie Dimon highlighted some of the bank’s most recent collaborations with fintech companies in areas including payments, mortgages and small business lendings.

While collaboration of this nature is on the rise, executives and entrepreneurs are noting that several hurdles are hindering more effective cooperation, which include differences in management cultures and styles, information technology and regulatory uncertainty. These were cited by the respondents to PwC’s report as major challenges hindering partnerships.

Anti-money laundering norms, know-your-customer rules and data privacy rules were seen as the biggest regulatory barriers towards developing more innovative solutions.

PwC’s report also mentions how blockchain technology continues to grow in finance, with investments in blockchain companies growing by a whopping 79% year over year in 2016 to $450 million.

While adoption of the nascent technology is expected to take some time, the results of the survey show that 55% of respondents planned to adopt them by next year, and 77% by 2020.

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