FinTech unlikely to replace traditional sector - CFA report


The new FinTech 2017: China, Asia and Beyond Report, released by CFA argues that, while FinTech companies were usually strong at technology and applications, they are mostly inexperienced in financial sector operations and therefore unlikely to completely replace the more conventional sectors of the financial services industry.

One of the report's authors, Larry Cao, CFA, Director, Content Asia Pacific, CFA Institute, said FinTech firms had a natural growth curve in areas where they were usually part of a system and built smart experiences that banks couldn't or didn't want to build.

"First, the most ideal development for FinTech firms is to collaborate with banks; each party has its strengths, and cooperation should be the long-term win-win strategy; second, banks are weak in technological segments like P2P while FinTech's offer more room for innovative ideas and technological skills but at lower profit margins; and third, FinTech enterprises continue to capture the technological development market because traditionally banks haven't been eager to develop these kinds of businesses. However, a change in attitude would pose the biggest threat to FinTech enterprises given the banking industry's sheer scale and resources."

"While FinTech will have a significant and potentially revolutionary influence on a broad set of sectors within the global financial services, FinTech leaders interviewed for our report noted that startups needed a large flow of customers, a large amount of data and a very strong credit risk skills to be successful," he said. "There was consensus the number of startups that would become big peer-to-peer winners was going to be in the tens, not in the hundreds or the thousands".

Anthony Serhan, CFA, President CFA Society Sydney and Managing Director, Research Strategy, Asia-Pacific at Morningstar, said the report focused on what CFA felt it brought to the FinTech table in terms of expertise and insights, namely a global membership organization of investment management professionals.

"Our global industry network is unparalleled and we add value by facilitating a balanced discussion among the major stakeholders. It will be their collective actions, rather than the action of any individual group, that will determine the FinTech industry's future and its impact on investors and financial services around the world including Australia."

Serhan noted the objective of the Report was to focus on areas where innovations are likely to disrupt financial institutions including blockchain, robo-adviser, mobile payment and P2P lending and intentionally limited discussion about artificial intelligence, big data and cyber security.

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