Big technology companies have had more influence than fintech on banking, says report

Fintech companies have transformed the way financial services are structured, offered and consumed, but they have not themselves managed to become dominant players in the market, it said.

"For years fintech has been the hottest topic of discussion in financial services", the WEF said in a report published this week on disruption in financial services.

However, while fintech companies have "materially changed the basis of competition" in financial services, they have not yet materially changed the competitive landscape itself, the report said.

Fintech businesses have pushed the pace and direction of innovation but "have struggled to overcome the scale advantages of large financial institutions", it said.

Customers have been less willing to switch away from incumbents than expected and new innovations have not been enough to encourage them to do so. The smaller companies have also struggled to create the infrastructure they need and to establish new financial services ecosystems, such as alternative payment rails or alternative capital markets, the WEF said.

"They have been much more successful in making improvements within traditional ecosystems and infrastructure," it said.

The situation creates risks for the financial services industry as well as fintech, the WEF said. Many financial services companies are turning to large technology firms like Amazon, Google and Facebook to provide functions including cloud computing, customer-facing artificial intelligence and customer analytics. While this can accelerate innovation, it would also create a risk if these technology companies decide to enter the financial services industry themselves in future, the report said.

The WEF also identified the emergence of distinct financial systems in China, Europe and the US.

In China large technology companies like Ant Financial and Tencent have emerged as leading providers of a range of financial services, in a departure from the bank-led model in the US, while in Europe the Second Payment Services Directive (PSD2) is expected to open up banks' customer data, creating more competition between incumbents and new entrants, it said.