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The Future of FinTech: A Banker’s Perspective

FinTech has an important role to play in retail, but like any developing sector, there are lot of startups wanting to get in on the game and make their mark.

As for who wins and who loses, that could depend on how well these firms adapt to the changes and innovation at retail, not to mention the needs of businesses and consumers. Jeremy Balkin, head of innovation for HSBC’s Retail Banking and Wealth Management Group, provides a banker’s perspective on the current state of FinTech and where it’s headed next.

First, he said expect a shake out—or at least a shakeup—as current players merge in an effort to survive, or fall off if they’re unable to do so. For companies that have yet to stake a claim in the market, Balkin says the odds aren’t good.

“It’s very unlikely that FinTech players who have yet to enter the market or already established today will be able to survive as new entrants given the amount of competition and capital already invested,” he said.

Here, Balken shares his thoughts on what will separate the winners and the losers, the companies to watch and how the pace of retail innovation will impact the sector.

Sourcing Journal: What is the current state of FinTech?

Jeremy Balkin: The current FinTech market is very competitive, with literally thousands of companies, big and small, trying to gain traction, a customer base and revenues. The winners will be those firms who can grow their customer base, have their own balance sheet and successfully partner with a bank.

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SJ: How much growth is there in the sector?

JB: The survivorship bias that skew the data and the increased competition between the FinTechs, challenger banks and established banks who are literally spending billions to modernize [means] we are more likely to see consolidation amongst the FinTech players of today than [see] significant growth in their ranks.

SJ: Who are the current players and how are they different from each other?

JB: The winners are those who have their own balance sheet, stable funding source, scalable client base and robust risk management framework in place. That filters out about 99 percent of the FinTech companies, and leaves names like Avant, Marstone and some others.

SJ: Is this sector one that could be impacted by mergers and acquisitions? 

JB: There is very little doubt that the FinTech industry will see consolidation, driven by competitive market forces and creative destruction essentially from a defensive posture given cash burn rates,  inability to scale, mono-line product offerings and competition from larger banking incumbents investing heavily in their own technology

SJ: What is the future of FinTech?

JB: Looking into the future, if we’re still talking about “banking” and “FinTech” like two separate entities, then both lose. The winners are those who recognize the value and importance of collaboration, partnership and co-existence.

SJ: What role do you think AI will play in the FinTech space as it evolves?             

JB: Personalization in financial services especially in retail is the holy grail and what customers now expect. Clearly, enhanced AI and providing actionable personable insights in real time from large unstructured data sets will have an even greater influence in banking and help deliver a superior customer experience.

SJ: Voice commerce has been growing. Do you think voice has a role in FinTech?

JB: Voice search is growing significantly and is forecast to be the dominant search method within five years. How voice applies to banking remains to be seen. At HSBC, we deployed the world’s first consumer facing robot named Pepper, where consumers can talk to her and be served if that’s their preferred method, and we’ve seen a 59 percent increase in new business at the locations we’ve deployed Pepper since launch.

To read more about the financial tech space as it relates to retail, read Sourcing Journal’s Consumers, Checkout & Creating Experiences That Resonate report.