Adoption of FinTech among digitally active consumers could double within next 12 months

Friday 22 January 2016

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  • 15.5% of digitally active consumers currently use FinTech products
  • Payment services are the most popular product offering
  • FinTech users are younger, wealthier and increasingly urban

The level of financial technology (FinTech) adoption among consumers is set to grow significantly in the next year, according to the results of EY’s inaugural FinTech Adoption Index.

The survey of 10,131 digitally active consumers in Australia, Canada, Hong Kong, Singapore, the UK and the US, found 15.5% had used at least two FinTech services — financial services products developed by non-bank, non-insurance, online companies — in the past six months. Survey responses also suggest that adoption rates among digitally active consumers could double within the next 12 months, if respondents follow up on their stated intentions to use FinTech products.

EY Australia’s FinTech Leader, Anita Kimber says it’s a change that will require traditional financial services companies to revisit their product, service and retention strategies if they want to compete effectively with new market entrants.

“The increasing availability of innovative, competitively priced products provided by the new Fintechs shows that consumers are willing to shop around and experiment. Brand loyalty is no longer enough. As FinTech continues to catch on, traditional financial services companies will have to reassess their view of what consumers are looking for in a digital age and step up their efforts to serve them effectively,” Kimber says.

The EY Fintech Adoption Index evaluates the use of ten FinTech services across four categories: savings and investments; money transfer and payments; borrowing; and insurance. The ten services include: peer-to-peer platforms for investments; equity or rewards crowdfunding; online investment advice and investments; online financial planning; online stock broking or spread betting; online foreign exchange; overseas remittances; non-bank money transfers; borrowing using peer-to-peer platforms; and health insurance premium aggregators or car insurance using telematics.

Hong Kong has the highest rate of FinTech use of all markets surveyed (29.1%). The US has the second-highest adoption rate (16.5%), followed by Singapore (14.7%), the UK (14.3%), Australia (13%) and Canada (8.2%). Interestingly the survey found that urban consumers used FinTech products at rates greater than the 15.5% average in all of the six regions surveyed. For example, online consumers in New York were the most likely to use at least two FinTech services (33.3% in New York City compared to 16.5% for the US as a whole). The same is true in Australia, with Sydney showing higher adoption (16%) than the average across Australia. 

Kimber notes that while FinTechs have entered the local market relatively late, a 13% early adopter usage amongst digitally savvy Australian consumers is a trend that cannot be ignored by the local banks and insurers.

“Market concentration, limited funding, and a comparatively conservative and costly regulatory environment may have all contributed to the later entry of FinTech providers into the Australian market. But, with business models having proven successful overseas, we are now seeing more players enter the market and adoption rates are likely to rise accordingly,” Kimber says.

Payments and savings products prove most popular
Payment services have the highest adoption rate among FinTech products in the markets surveyed (17.6%). Services in this category include the use of non-bank providers to make online payments, online foreign exchange, and overseas remittances.

Savings and investments is the second most-used category (16.7%). Online stock broking and spread betting is the most common activity within this category, followed by online budgeting and planning; online investments; equity and rewards crowdfunding; and peer-to-peer or marketplace lending. Stuart Stoyan, CEO of MoneyPlace, notes that consumers have become increasingly frustrated with lack of choice and high fees from banks and insurers.

“Developments in technology mean that we can use data far more effectively to assess risk and connect those who want to lend with those who want to borrow. The FinTechs won’t replace the banks, but we are here to stay,” Stoyan says.

Insurance services, including health premium aggregators and car insurance using telematics (7.7%), and online borrowing through peer-to-peer websites (5.6%) are among the less commonly used services by respondents.

Use of FinTech greatest among younger, wealthier, urban customers
Early FinTech adopters tend to be younger, higher-income customers. Respondents between the ages of 25 and 34 years old were the most likely to have used at least two FinTech products in the past six months, followed by those aged 35 to 44 (21.3%), and those aged 18 to 24 (17.7%).

FinTech use is highest among consumers with incomes greater than US$150,000 (44.1%). Usage declines to 24% among consumers with incomes between US$70,001 and US$150,000, and 14.7% for consumers with incomes between US$30,001 to US$70,000.

“Higher-income individuals are some of the most economically valuable customers for banks and insurers. A shift to FinTech among this group has the potential to lead to increased margin concentration and loss of market share.”

“To combat this,  banks and insurance will have to review how their products, and channel strategies will meet their customers’ needs in future. We are already seeing most of them establishing partnerships with Fintech providers. This is likely to accelerate – otherwise they may have difficulty stemming a flight to FinTech.”

Product awareness the greatest obstacle
Of those digitally active respondents who have not used two or more FinTech products in the past six months, 53.2% say they were unaware the products existed. The lack of awareness was even higher among Australian respondents, at 56.4%.

But Kimber expects awareness and adoption in Australia to increase, in part as a result of the work local ‘innovation hubs’. The focus on innovation from the Turnbull Government, and various state governments’  initiatives in this space, will also create a climate that encourages more local and international Fintech players into the market.

“The thing that was perhaps surprising in our survey was that trust has not been a major inhibitor to FinTech use, with only 11.2% of respondents saying they do not trust FinTech products,” Kimber says.“This could probably be explained as part of a broader trend in trust of technology platforms and providers – digitally active consumers are already over the trust barrier because they are already transacting online in other sectors.”

“The regulatory focus on financial service consumer protection in most countries has certainly benefitted Fintechs but, increasingly, technologies such as blockchain mean that there is still more work for the regulators to do. So, while right now 27.7% of non-FinTech users say they prefer to use a traditional financial services provider, as awareness of FinTech products increases and we see increasing regulatory oversight, it won’t be enough for banks and insurers to rely on trust and brand name to attract and retain customers.”

“The days of banks and insurers being able ‘manage’ customer relationships are gone, if indeed they ever existed. According to EY Sweeney, 53% of consumers research new financial services products weekly on-line1. Increasingly customers expect to be in control and they are demanding greater choice,” Kimber says.

“Co-existence and collaboration between the new and old market players will provide increasing choice and new financial service products and services will surely emerge. The results of the EY Fintech index show that the next wave of innovation in financial services is here to stay.” 


Notes to Editors

About EY
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About the survey
EY’s FinTech Adoption Index attempts to capture the extent of adoption of FinTech by digitally active consumers. The index draws upon a survey of 10,131 digitally active consumers undertaken from 1 September 2015 to 6 October 2015. Survey respondents were located in Australia, Canada, Hong Kong, Singapore, the United Kingdom and the United States. FinTech users were defined as survey respondents who indicated they used two or more FinTech products in the past six months.

1 EY Sweeny, Digital Australia: State of the Nation Report 2014