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Global Credit Research - 18 May 2016
New York, May 18, 2016 -- While the rise of fintech firms highlights the shift to digital in financial
services, banks will retain a place at the center of the industry
and continue to work both alongside and in competition with new entrants,
said Moody's Investors Service.
Estimates for the number of fintech-related startups range as high
as 4,000 companies, globally, with total estimated venture
capital investment rising from about $2.4 billion in 2011
to more than $19 billion in 2015. Along with the high growth
rate of investment, the sector has shown signs of maturation --
with later stage investments accounting for a rising share of the total
and the number of 'exits' via acquisitions and (a still small
number of) IPOs also increasing.
In a new report, Moody's said it anticipates an evolutionary
path for banks, as the traditional players take advantage of new
technologies and approaches to improve the consumer experience in order
to maintain competitiveness. While the Millennial cohort --
who are typically more open to, and often expect, technology-enabled
services and interfaces -- are behind much of the impetus for fintech's
rise, Moody's analysts said it will likely be a few years
before this large group predominates in terms of consumption of financial
"Millennials lag prior generations along a number of indicators
important to financial services firms, including lower household
formation and home buying rates, higher student loan burdens,
lower earnings and higher debt-to-income ratios,"
said Moody's Senior Vice President Robard Williams. "Banks
will certainly need to transform to appeal to this generation and counter
fintechs' rise, but many incumbents have made significant
steps towards implementing their own digital strategies and they have
some time before the full transformation is complete."
The ratings agency noted that much of the focus of fintechs has been on
retail banking services, largely lending and financing along with
payments-related products and services. While the new entrants
have shown growth in these areas -- in some cases filling space vacated
by the banks due to post-crisis regulation -- Moody's
said banks have a number of competitive advantages that place them in
good stead as the industry evolves including large customer bases,
deep client relationships, long lending histories and experience
navigating regulatory bodies.
"For banks, being traditional players in the space remains
a significant competitive advantage, but it also means they have
the resources to build internally or acquire to establish a presence on
new platforms," said Williams.
Though a major competitive reversal for banks is unlikely, Moody's
noted that several forces could shift the scales or accelerate the transformation
of the industry including greater movement toward open data, a more
defined regulatory stance would crystalize, and perhaps change,
the rules of engagement, the introduction of a 'killer app'
or the entrance of one or more bigger technology companies into the fintech
Subscribers can access the report, "Financial Institutions
- Global: Fintech Transforms Competitive Landscape,
but Unlikely to Displace Banks' Central Role" at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1023176
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This publication does not announce a credit rating action. For
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for the most updated credit rating action information and rating history.
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Gregory W. Bauer
MD - Global Banking
Financial Institutions Group
Moody's: Fintech to drive transformation rather than disruption for banks
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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