Here's why financial firms' fintech strategies are failing

Around 80% of financial services executives say their firms have some form of structured fintech strategy in place, but only 10% say their strategy is very effective, according to data from Capgemini’s World Fintech Report. The survey also highlighted a number of factors that execs believe are behind this lack of success.

• Risk averse cultures. The top barrier to achieving results is a lack of conducive culture for innovation, with 40% of execs citing this as a significant obstacle. Removal of this barrier requires that leadership acknowledge there is a cultural challenge and support the implementation of a clear strategic vision and plan.
• Budgetary constraints. Thirty-seven percent of respondents said budgetary constraints were hindering innovation, making it the second-biggest hurdle to achieving results. In part, budgetary constraints arise from a need for organizations to spread budget across business-as-usual operations, including maintaining legacy systems.
• Struggles to attract the right talent. The majority of firms agree that they need to address talent challenges, like the need for more employees with analytic/data science skills, in order to catch up to industry wide technological changes. Their biggest obstacle in this area is competition for talent, with 67% of respondents citing it as a top hurdle.

Getting the right leadership is key to overcoming barriers to successful innovation. In order to ensure fintech strategies achieve results, firms should focus on making sure they have the right leaders in place. If top execs are supportive of a firm’s fintech strategy, it is much more likely to succeed. That’s because they can instigate cultural change from the top and have the power to prioritize budget for innovation where necessary. Implementing these two changes will likely help create a more attractive environment for innovators, and give firms an edge in the ongoing battle for talent.

As Capgemini’s World Fintech Report shows, we’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs.

No firm is immune from the coming disruption and every company must have a strategy to harness the powerful advantages of the new fintech revolution.

The battle already underway will create surprising winners and stunned losers among some of the most powerful names in the financial world: The most contentious conflicts (and partnerships) will be between startups that are completely reengineering decades-old practices, traditional power players who are furiously trying to adapt with their own innovations, and total disruption of established technology & processes:

• Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees
• Traditional Lenders vs. Peer-to-Peer Marketplaces: P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful
• Traditional Asset Managers vs. Robo-Advisors: Robo-advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.

As you can see, this very fluid environment is creating winners and losers before your eyes…and it’s also creating the potential for new cost savings or growth opportunities for both you and your company.

New players have the potential to become the next Visa, Paypal or Charles Schwab because they have the potential to transform important areas of the financial services industry like:

• Retail banking
• Lending and Financing
• Payments and Transfers
• 
Wealth and Asset Management
• Markets and Exchanges
• Insurance
• Blockchain Transactions

If you work in any of these sectors, it’s important for you to understand how the fintech revolution will change your business and possibly even your career. And if you’re employed in any part of the digital economy, you’ll want to know how you can exploit these new technologies to make your employer more efficient, flexible and profitable.

Among the big picture insights you’ll get from The Fintech Ecosystem Report:

• Fintech investment continues to grow. After landing at $19 billion in total in 2015, global fintech funding had already reached $15 billion by mid-August 2016.
• The areas of fintech attracting media and investor attention are changing. Insurtech, robo-advisors, and digital-only banks are only a few of the segments making waves. B2B fintechs are also playing an increasingly prominent role in the ecosystem.
• It’s not all good news for fintechs. Major hurdles, including customer acquisition and profitability, remain. As a result, many are becoming more willing to enter partnerships and adjust their business models.
• Incumbents are enacting strategies to ensure they remain relevant. Many financial firms have woken up to the threat posed by fintechs and are implementing innovation strategies to stave off disruption. The majority of these strategies involve some interaction with fintech firms.
• The relationship between incumbents and fintechs continues to evolve. Fintechs are no longer viewed exclusively as a threat, nor can they be ignored. They are increasingly viewed as partners, but that narrative alone is too simple — in reality, a more nuanced connection is taking hold.