Has the fintech phenomenon already burnt out? After a revolutionary birth, has it become a victim of cost constraints and lacklustre output throughout the UK banking industry?
That's the question posed by Accenture, who argued that the UK's financial startups have failed to entice customers from high street banks and this has triggered a funding crisis. Further, the financial services adviser claimed none of the fintech’s promises have come to pass.
“They promised to change market structure, radically improve products and services, and save the high-street banks from sliding into invisible utilities," found an Accenture report. "But traditional banks are still standing while fintechs have yet to gain real traction in customer acquisition, the true litmus test for fintech success."
Accenture noted that internal incubators and innovation streams have universally failed to produce killer apps and 'death after proof of concept’ has become the norm.
The financial services specialist also found that promises of 20 to 30 per cent improvements in cost/income ratios show little evidence of coming to fruition, and costs remain stubbornly correlated to revenues.
“That UK retail banking fintechs seem to be perpetually stuck in beta - and risk being overtaken by the next wave of technology - adds to this sense of stalled progress."
No unicorn sightings
As long as fintech chanted the ‘bank disruption’ mantra, it enjoyed huge valuations and had no shortage of funding. But the perception of a revolution is now on the wane. Consequently, UK startups have seen their venture capital investment fall by more than a third in the last year.
“That could perhaps reflect a fall in confidence in the wake of the Brexit vote and of the UK financial industry’s position within global financial markets. But whatever the reason, it’s fair to say that fintech unicorns have not yet emerged as promised. And the net book value of over 60 per cent of incumbent banks in mature markets has remained below one – these companies aren’t going anywhere anytime soon.”
Nevertheless, Accenture thinks the revolution is more likely to be stalled than dead. The consultant argued that the UK can establish itself as a leading exporter of fintech research and development but to achieve that the country will be forced to compete for investment and talent.
“This is particularly important now because of Brexit, which may result in limiting of free movement and see banks shift operations overseas. The UK has always needed innovation to help it punch above its weight – and fintech should be seen as a major differentiator in this battle, and as a valuable counterpoint to the risk of isolation in the Brexit era."
The report concluded that the fintech scene is unpredictable.
"Whether the revolution succeeds or not will take time to play out and will depend on the end state of the evolving market structure, on profitability improving by more than the bow-wave of interest rate increases, and on prices lowering for all forms of banking.”