Banks face fintech challenge as Generation Y wants more
ANALYSTS predict that the surge in global investment in financial technology firms (fintech) will continue as companies continue to sprout up in the area.
In 2013 investment into fintech firms was estimated to have stood at around $3bn (€2.6bn), according to online statistics company Statista.
Statista predicted investment in the area would to grow to $8bn by 2018. However, that figure now seems to be redundant given that in 2014, money being pumped into the sector tripled to $12bn.
Regardless of which is more accurate, both seem to be pointing towards a rapid expansion of fintech, which may cause problems for the traditional banking industry.
Customers that are most likely to be targeted by fintech firms are those aged 54 and below, according to new research by financial services firm Ernst and Young.
The firm surveyed over 10,000 digitally-active people across various world markets and found that fintech adoption among those aged below 34 and earning a high salary (€61,428) is quite strong.
The survey showed more than half of those aged between 18 and 34 earning over €131,000 are using fintech technology.
EY expects this number to grow to 64.4pc as the sector expands with uptake amongst 35 to 54-year-olds actually expected to surpass it.
In a digitally-active audience EY says the use of fintech could double over the next year.
Global fintech leader at EY Imran Gulamhuseinwala said the area is likely to cause significant disruption in the traditional finance sector.
"As fintech continues to catch on among consumers, traditional financial services companies will have to reassess their view of which customers are most at risk from the new competition and step up their efforts to serve them effectively."
Fintech startups have cropped up a lot in recent years with Stripe being the most recognisable name to Ireland.
Stripe was set up in 2010 by Limerick brothers John and Patrick Collison.
The pair's firm helps its clients accept and manage online payments.
The company's success is built around the basis of fintech, which is making life easier for the consumer.
Over the last six months 15.5pc of digitally active consumers used at least two fintech products according to EY.
That usage is predicted to grow strongly and poses a significant risk to banks.
So what can banks do? The so-called Facebook generation is set to enter its prime earning capacity over the next ten years and they are a different type of consumer to the one that banks have been serving for the last number of decades.
EY global banking lead Steven Lewis said banks will have to revise their current offering to secure what he says are their "most economically valuable customers".
"These organisations will have to review how their offerings, such as their own multi-channel strategies or partnerships with fintech providers, meet their customers' needs. Otherwise, they may have difficulty stemming the flight to fintech."
EY found the main reason for consumers having not used fintech was because they were unaware of what it is, while over 10pc don't trust them.
Meanwhile, optimism among senior bankers has fallen to its lowest levels since 2012.
This year is the fourth consecutive year of decline for optimism according to EY.