ExcerptDigitization has a strong impact on the financial services industry. One major reason is that financial products are almost exclusively based on information. Examples are payment transactions or credit contracts which, in contrast to purchasing a car, do in most cases not include any physical components. Another reason is that most processes are almost entirely implemented without any physical interaction such as for example online payment or stock trading – exemptions are some physical forms of interaction such as client advisory. Due to recent developments in information technology (IT), the ongoing process of digitization is not only leading to an increasing automation of processes, but to a fundamental reorganization of the financial services value chain with new business models (e.g., robo-advisors) and new actors entering the market (e.g., Apple). The term “financial technology” or short “fintech” reflects this development of an IT-induced transformation. Among the drivers of this transformation are (Alt and Puschmann 2012, p. 204 f.; Alt and Puschmann 2016, p. 24 ff.):
Changing role of IT Recent developments in information technology (IT) and their convergence, such as social computing, big data, internet of things or cloud computing enable financial services companies to not only automate their existing business processes, but offer the possibility to provide entirely new products, services, processes and business models for the financial services industry. Among the prominent examples are crowdfunding or peer-to-peer insurance platforms which have developed as complementary models to the ones of banks and insurance companies.
Changing consumer behavior The use of electronic interaction channels by customers has grown over the last years and has forced many financial service providers to resize their branch and agent networks and reorganize their channel management towards hybrid client interaction and more customer self services (Nüesch et al. 2015). For example, in Germany banks reduced the number of branches from about 50,000 in 1990 to 34,045 in 2015 (Deutsche Bundesbank 2016) and the number of branch visits sank from 3 to 1 within 15 years (Pickens et al. 2009).
Changing ecosystems Traditional banks and insurance companies have reduced their degree of in-house production (outsourcing) over the last decades which has led to a more focused specialization. This trend towards resizing internal operations started in the companies’ back offices and has recently gained momentum in their front offices, too, leading to entirely new ecosystems including incumbents and fintech start-ups but also to the inclusion of companies from outside the financial services industry. A recent example is the cooperation of O2 Telefonica and Fidor Bank.
Changing regulation Although after the financial crisis in 2008, regulation of the financial services industry increased in almost all areas, many countries have launched initiatives to lower entry levels for fintech start-ups in recent years. Examples are London, Singapore or Hong Kong which introduced a so called fintech “sandbox” for experimenting with new products and services and business models, foster market development with specialized organization units (e.g., Innovate Finance in the UK), and provide financial support (e.g., Monetary Authority of Singapore).