How technology is transforming financial services

Fintech is at the centre of how financial services, and also technology, media, and telecommunications companies, are changing.

The once distinct financial services and technology, media, and telecoms (TMT) sectors are now “colliding”, the recently published PwC Global Fintech Report 2019 stated. “Many TMT companies are applying for [financial services] licences, and [financial services] organisations have begun calling themselves technology companies.” The shift can be seen with Apple’s credit card launched in August, Facebook’s planned Libra digital currency, and Google as it moves into banking and financial services.

Wilson Chow, PwC’s TMT global leader, said in a press statement that in China, “convergence is gathering pace”. He added: “At the top of the market, we’ve even seen regulators seeking to match up the big four TMT firms with the big four banks and get them to work together — you could call it an arranged marriage.”

TMT firms, he explained, provide the tech enablement, and financial services firms deliver the end product.

AI’s leading role

AI (artificial intelligence) is one technology among many that is set to transform the way financial services are delivered. Overall, more than half of financial services executives and leaders of TMT companies surveyed by PwC recognised this emerging technology’s key role.

For financial services executives, the other technologies leading the change are big data (44%), cloud (43%), blockchain (40%), and 5G (39%).

TMT leaders had a similar top list but predicted that the internet of things (52%) would be the most important technology in the next two years.

Adam Luk, FCMA, CGMA, is a member of CIMA Council and head of finance at Level39, a London incubator-accelerator hub that provides fintech, retail, and cybersecurity startups with physical space, infrastructure, and an ecosystem. He said that a decade ago, with the fintech revolution well underway, the most important tech areas for finance were cloud-based data, data visualisation, and how data powers automation and AI.

“They are the main ingredients that kick-started the fintech revolution and the main ingredients that also underpin other disruptions in other industries,” Luk said.

Giving the examples of China’s Alibaba and Tencent, he said: “What we are seeing now is platform-based technologies [becoming] more prominent … in connecting customers to companies and making things a lot more frictionless.”

The PwC report said that fewer than half of financial services and TMT companies are targeting — through acquisition, strategic alliance, or joint venture — companies specialising in fintech. It stated: “At a time when [financial services] firms are striving to sharpen their technology capabilities and TMT needs product and regulatory expertise to compete in the [financial services] market, we think firms will miss opportunities if they don’t pursue more cross-sector fusion.”

Luk said that, as one option, “we are seeing banks separate [away] from their own HQ innovation teams to work alongside the startups.”

However, he identified a problem with partnering arrangements: “Incumbents [financial services firms] are slow, and startups are fast.” He said, “There is a trust element: Should they make their own products or services? [As an alternative] they could acquire and they could partner with fintechs.”

Luk said there needs to be understanding before trust is built between people in fintech and those in the incumbent financial services firm. There is also a contrast between the startups’ flat leadership structures and quick decision-making and incumbents’ more hierarchical approach.

Culture clash?

The PwC report says “cultural compatibility is a critical element of the deal assessment” and that the “potential culture clash” can be a deal breaker. Tech is largely unregulated, risks are taken but not measured, and failure is expected, the report says. In contrast, financial services firms “exist to assess risk safely” and the consequences of failure can be “severe”.

There are two steps to take to avoid deals coming up short on expectations, PwC said:

  • Embrace a collaborative operating model. The fintech-driven model is completely challenging how financial services have attempted to control their value chains and ownership of the customer interface. It’s therefore important, PwC said, “to develop the relationship skills and strategic blueprint to succeed in increasingly convergent, or at least cooperative, commercial ecosystems”
  • Plan and test a detailed operating model of the combined entity. PwC says defining value in the deal needs to be clear — for example, maximising profit or technological modernisation.

There is concern, PwC found, about the lack of skills — across the workforce and in senior leaders — needed to develop and implement fintech.

As boundaries between sectors are removed, moving beyond traditional recruitment is important, the report said. Financial services companies are looking to the technology industry to access data analytics and other skills needed to implement fintech.

But financial services firms also need to upskill existing employees. “You need to get your people comfortable with new and emerging technology and instill in them the skills, mindset, and behaviour of innovation,” PwC concluded.

Luk said the new skills will be provided by data scientists, coders, and developers. He said that today, CEOs typically are younger, with less experience than previously, and that “you need to understand the technology to lead”.

An earlier PwC report, Fit to Compete: Accelerating Digital Workforce Transformation in Financial Services, said that as banks no longer had an edge in graduate recruitment, a greater focus was needed on the employee experience and the organisation’s professed purpose.

Oliver Rowe ( is an FM magazine senior editor.