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How incumbent banks can retain their market position against the rise of FinTech

Introduction -Background                                                                                                         2

Literature Review                                                                                                                         3

FinTech as a research matter                                                                                                3

Payment                                                                                                                                    5

Lending                                                                                                                                     6

Opportunities for incumbents                                                                                                7

Partnering                                                                                                                                 9

Investment                                                                                                                              10

Integrating data-driven solutions within incumbents                                                     11

Conclusion                                                                                                                             12

Research Objectives and Research Questions                                                                13

Research Designs                                                                                                                     13

Data collection and analysis                                                                                               15

Reference List                                                                                                                                                                       20

Introduction -Background


Long considered a highly insulated industry, banking is being penetrated by a number of promising FinTech start-ups looking to entice traditional banking customers and causing disruptions in the banking industry. There has been an unprecedented surge in the number of these FinTech start-ups, each with the potential to cause disruptions to the banking industry.  Dietz et al (2016) suggests that there are as many as 12000 FinTech companies around the globe. The investors around the globe contend that FinTech start-ups become a key player in the financial services market, successfully causing the so-called threat of disintermediation, whereby intermediaries (i.e. traditional banks) involved in the provision of financial services are eliminated. The imminent case of Transferwise, a burgeoning FinTech start-up, which is about to cause disintermediation in enabling customers send money to foreign accounts without using bank services, is a testament to the potential threat posed by these FinTech start-ups. Nonetheless, with traditional banking sector incumbents making forays into other domains such as internet banking, it can be argued that these banks are implementing strategies with a view to mitigate and counteract the disruptions caused by FinTech start-ups.  Whether it is partnering with these FinTech companies, or adopting strategies to formulate and develop competitive products, traditional financial services renderers (i.e. banks) have been more or less proactive about countering the threat of FinTech disruptions. This research aims to analyze the FinTech phenomenon and the areas where it presents the most perilous threat, and identify strategies traditional banks can implement to ensure their market share is not undermined.

 Literature Review

There a number of key areas of financials services market which are considered the most susceptible to disruption by FinTech companies. Nonetheless, most of the academic literature into these areas have been limited to reports and researchers conducted by PwC, KPMG, with a limited number of researcher concentrating on this area.

FinTech as a research matter

Gulamhuseinwala et al (2015) provides a succinct definition of FinTech products, defining them as products formulated and developed by a non-bank, non-insurance, online companies.  Gulamhuseinwala et al (2015) cites that customer adoption of FinTech services and products have been unprecedentedly   high, suggesting how when it comes to payment and planning, roughly 15% of digitally active consumers availing themselves of some sort of FinTech companies. Gulamhuseinwala et al (2015) contends that FinTech has the potential to entice customers away from incumbents in the financial services market. As much as there is a contention as to the areas which are considered the most susceptible to FinTech disruption, most studies reach a tentative consensus as how disruptive FinTech can be. Hirt and Millmott (2014) contend that ‘digitization often lowers entry barriers, causing long-established boundaries between sectors to tumble’, citing the detrimental implications of FinTech for incumbents in the banking industry. Christi and Barberis (2016) underlined the importance of FinTech disruptors, and noted the unprecedented increase in the number of robo advisors advising customers on wealth management and other financial matters as having the potential to supplant wealth-management companies. Christ and Barberis (2016) conclude that FinTech start-ups cause disruptions in the areas, indicate that robo advisors, while democratizing FinTech, are detrimental to private banks.  Chiu (2016) concentrated on how digital and propriety technologies and their implications for the financial services sector. Chiu (2016) conducted his research within the Financial Times survey which was undertaken to research the relationship between FinTech disruptors and the traditional financial sector.  Chiu (2016) exclusively focused on online crowdfunding, P2P lending, new consumer payment devices and methods, and advocated for new strategies to be implemented and adopted by traditional financial to ensure that they can counteract the disruptive force posed by these FinTech companies. To conclude, there seems to be an unanimity among the findings of studies as to how detrimental FinTech can be. PWC (2018) has identified a number of areas where FinTech disruptors make and contends that AI is one of the areas which will enable FinTech companies to disrupt the financial services market and present a threat to the incumbents in the financial services market.  Cavallo (2016) shows payments as one of the key areas of traditional financial marketing services as the most susceptible to disruption by FinTech. Cavallo (2016) suggests that the FinTech disruption can successfully cause disintermediation in the provisions of payment services.  The ability of FinTech to cause disintermediation is considered the most precarious threat of these companies, ventures to assert Emmerson. Furthermore, PwC (2017) contends that a disruptive technology, block chain in particular, will disrupt the financial sector industry, and cites how incumbent financial services provides have yet to formulate and implement strategies to respond to the disruptive force. (2015).


He et al (2017) asserts that the most susceptible area of financial services to FinTech disruption is cross-border payments, citing how FinTech can facilitate swift cross-border transactions, and highlights the case of TransferWise to substantiate their findings. There are number of key findings which corroborate the results of He et al (2017). PwC (2017) contend that fund transfers and payments are the two areas which are primed to be disrupted by the new FinTech companies which are proliferating.

Magna Carta Communications (2017) supports PwC (2017) findings, by suggesting that roughly half of the new FinTech companies are exclusively focused on payments and funds transfer, testifying to how the disruptive the force might be the payments and funds transfers area of financial services market.  Boot (2014) also contends that payments, particularly retail-related payments, are the most primed aspect of financial services market for new disruption by these FinTech companies.

Overall, there tends to be a unanimity among academic literature as to how payments are considered the most vulnerable to disruption by FinTech.


Unlike Magna Carta Communications (2017) and PwC (2017), Conner (2013) cites that lending, which has long been considered the staple of  incumbents, is one of the areas which were the most upended by new FinTech companies.  Conner (2013) predicated his analysis on how lending with incumbents in the financial services market was time-consuming and cumbersome, providing a conducive landscape for P2P lending. Williams (2015) also cites lending as one of the key areas which are susceptible disruption by new FinTech companies. Williams (2015) notes the proliferation in the number of P2P lending as such Lending Club and Porsper, which are a marketplace for creditors, and enable customers access loans at lower rates.

Opportunities for incumbents

Deviating from what has been suggested by other researchers   World Economic Forum (2017) suggests that incumbents in the financial services market have successfully resorted to either partnering and acquiring these FinTech to reinforce (i.e. consolidate) their market positions, citing that incumbents have come to consider FinTech companies as a ‘supermarket’ for capabilities. World Economic Forum (2017) diminishes the potential of these FinTech companies, indicating that customers are less likely to switch away from the incumbents, and concluding that switching costs are high. Moreover, Wold Economic Forum (2017) suggests that FinTech companies have been less than successful in cultivating new financial services ecosystems, and thus could not disrupt the traditional financial market. Even though P2P lending, whereby banks are successfully bypassed when requesting and receiving loans, has gained wide traction, Cortese (2016) suggests that the wide traction cannot amount to a disruptive force largely because four fifth of the money lent by P2P FinTechs such as LendingClub was derived from traditional banks. Moreover, World Economic Forum (2017) contends that the proliferation of FinTech companies enable the incumbents in the financial services market to gain incisive insight into what innovative products can be viable and feasible, before developing and implementing their own products. The Economist (2017) is also less than optimistic about whether or not the these FinTech companies can upend the financial services sectors, basing its findings on how FinTech companies are devoid of enough capital, and how traditional banks have become economies of scale.

Corteses (2016) concludes that P2P has enhanced the provision of financial serious rather than disrupt the financial services market, while not having the ability to upend the financial services market as some researcher had foresaw.  Likewise, Bretz et al. (2013) is also somehow dismissive of how disruptive these FinTech can be, and regarding their ability to upend the financial services market give how three out of four fail to materialize and successfully penetrate the financial services market, or failing to entice more customers.

On the other hand, Jeffrey and Arnold (2014) contend that FinTechs can in fact upend the financial services market, negating the validity of finding of Bretz et al. (2013).  Moreover, Jeffrey and Arnold (2014) suggests that FinTech companies are inherently detrimental to the incumbents in the financial services market.  Lee (2015) foresees as a relatively dismal future for incumbents in the financial services market. Lee (2015) asserts that as these FinTech start-ups tend to offer more personalized service, and are considered attractive to millennials, they will certainly have negative implications on the pricing power of the incumbents. Chatham House (2017), on the other hand, contends that FinTech has the potential to disrupt the financial services market and be detrimental to the profitability of the incumbents. Nonetheless, Chatham House (2017) also notes that FinTech can in fact open up new sources of revenue for the incumbents, negating their disruptive force. Overall, there tends to be a number of key findings suggesting that FinTech can indeed be an opportunity for the incumbents.


Partnering as a strategy by incumbents to ensure that they are competitive has been the focus of a number of studies.  For instance, PwC (2017) surveyed incumbents in the financial services market, and determined that 82% of the incumbents were amenable to partnering with FinTech companies as a way to ensure that they can sustain their market positions in the financial services market. PwC (2017) also noted that 77% of the incumbents in the financial services industry had planned to incorporate block chain, which is a new technology ushered in by FinTech companies, in their production systems.   Accenture (2015) enumerates how these disruptive forces posed by FinTech companies can be employed in way that adds value to the incumbents to the banks. Accenture (2015) cites how banks should collaborate with up-coming innovators and FinTech companies to ensure that they are able to generate value from these technologies. PwC (2017) cites how 53% of incumbents it studies is already in engaged in partnering and collaborating with FinTech companies, highlighting how incumbents have become more or less receptive to partnership and collaboration.


Douglas and Grinberg (2017) suggest that there has been an unprecedented surge in the investments being injected by incumbent banks into FinTech companies to highlight how incumbents are resorting to investing in FinTech companies as one of viable strategies to ensure the disruptive force by FinTech is turned to opportunities. Romanova and Kudinska (2016) also cites investment in and collaboration with FinTech companies as one of the most viable strategies which can be adopted by incumbent banks. Moreover, Accenture (2015) also notes how banks have started to invest more into new FinTech companies with a view to ensuring that the technological know-how of these companies can be capitalized on by banks to generate more value.

On the other hand, PwC (2017) highlighted how the number of incumbents investing into data analytics, mobile, AI and blockchain is increasing, which is a testament to how banks tend to invest to survive and thrive amid disruption, with 90% of incumbents citing how they were amenable to investing into blockchain by 2020.

Integrating data-driven solutions within incumbents

The incumbents tend to develop their own products to ensure that their market position is consolidating amid FinTech furor.  Dapp (2014) cites that financial service providers, particularly banks and saving banks, as the most reliable when it comes to mobile payment applications, negating the implications of FinTech companies on banks and insulating them from competition. Furthermore, Vatanasombut, et al. (2008) cites that the costs involved in customers from banks towards FinTech is high, and that banks are still perceived as the most secure place for liquid assets among customers.

Dapp (2014) suggests how banks can better integrate data-driven solutions into their practices, and develop more products and services which are underpinned by sound data analytics and AI.


To conclude, most academic research conducted into FinTech suggest that FinTech companies can upend the financial services market, and replace the current incumbents.  The academic literature synthesized and analyzed for this part suggests how FinTech companies can in fact be leveraged in a way that adds value to the incumbents, thus vitiating their disruptive force.  Nonetheless, as to the areas which are most susceptible to FinTech disruption, there is not such consensus amongst the results.

Research Objectives and Research Questions

The literature view suggests that there are areas which have yet to be researched in the correlation between FinTech disruption and incumbents in the financial services market.

  • Identify the areas of financial markets where FinTech start-ups cause the most potent disruptions in the UK
  • Identify the strategies which can be adopted (or are being adopted) by traditional financial service players to counteract these disruptions

Research Designs

Research design is an indispensable component of methodology and is conducive to the identification of key research areas and answering the research questions. Research design has to be designed in a way that is in conformity with the research objectives (Recker, 2012). Research design enables the researcher to have a clear vision as to how collect, process and analyze the data to answer the research question.

To identify the areas where FinTech poses the most competition, and identify the strategies which are being used by incumbents in the financial services, the researcher will employ the qualitative data collection method.  Qualitative research method can be defined as ‘‘any kind of research that produces findings not arrived at by means of statistical procedures or other means of quantification’ (Strauss and Corbin, 1990). When considering the viability and applicability of the data collection methods, scrupulous attention has been devoted to the differences between qualitative research method and qualitative research method.

Data collection and analysis

For the qualitative research method, data will be collected using interviews. Interviews, as a viable data-generation tool, has gained traction. Proctor (2003)   asserts that interviewing as a data-collection method can be conducive to the generation of data, predicted upon a deeper insight into a phenomenon.

The research will develop an instrument (i.e. document containing interview questions). The research questions are mostly open-ended. Open-ended questions are feasible in enabling the researcher to derive more insight into the subject matter being researched since open-ended questions incentivizes the respondents to expand on their responses (Marquardt, 2014)

Mutch (2013) also highlights the importance of having more open-ended questions, and how unstructured interviews tend to produce more insightful answers from the responses. On the other hand, structured interviews tend to assume total control over respondents, decreasing the likelihood of them producing insightful answers (Rowley, 2012). Therefore, the researcher will ensure that the interviews are not structured, and that more open-ended questions are incorporated into the interviewing instrument.


Sampling is process where the researcher chooses respondents in conformity with the research objectives Cohen, Manion, and Morrison (2008), and assumes a key role in ensuring the validity and reliability of the results of a research. There are a number of types of sampling process. When considering an appropriate sampling process, key attention has to be paid to the research questions and objectives.

For the purposes of this particular research, the research will employ the so-called purposive sampling. Purposive sampling (i.e. homogenous sampling) is employed by researchers to ensure that the sample for a research is chosen considering their qualifications, professions, and experiences.  Essentially, the purpose of homogenous sampling is to choose information-rich samples (Patton, 2002).

The researcher has set a certain criterion which is used to ensure the conformity of prospective samples;

  • Samples to be employed by retail banks in a capacity where they were privy to operations as to how new innovations were introduced at their respective workplaces


  • Samples to be either consulting retail banks as to how counteract the disruptive force of Fintech


  • Samples to be employed in consultancy and outsourcing firms where they were assigned with devising a FinTech strategy


  • Samples to be employed in consultancy and outsourcing firms where they were assigned with researching and specializing in FinTech implications


Analysis is a process whereby the researchers carefully synthesized and analyzes the data to answer the research questions and achieve research objectives (Marshall and Rossman (1990).  To identify the areas of financial market which are more susceptible to disruption by FinTech and identify the strategies being adopted by incumbents, the researcher has decided to adopt an orthodox method of analyzing data.  Even though there are many software available to analyze qualitative data, the use of these apps such as NVIVO is not always recommended, particularly for non-structured interviews Alabri and Hilal (2013). Therefore, the researcher will employ a strategy whereby particular themes and patterns are identified from the data to answer the research questions. The interpretation and analysis of qualitative data can be onerous, and compromise the quality and validity of the research results. Therefore, the researcher will ensure to consider more options regarding analysis methods, and decide on one which is the most viable.


Firstly, conducting a qualitative research can harbinger a number of ethical issues. Since the researcher will be collecting data using interviews, confidentiality is a key concern for both the researcher and respondents, with Allmark et al (2009) citing confidentiality as the most prevalent ethical issue associated with generating data by interviewing.  The researcher intends to take a number of measures as to ensure the confidentiality and anonymity of the respondents.

Secondly, undertaking a qualitative research can be detrimental to the privacy of participants, which is another key ethical issue (Traianou, 2014). To ensure that the privacy of the participants is protected, the researcher has decided to employ a strategy with a view to decreasing the disclosure of information which can be used to deduce about the participants (Kaiser 2010).

To conclude, conducting a qualitative researcher entails a number of ethical issues, and the researches acknowledges, and ensures that measures taken  make sure these ethical issues are mitigated.

Reference List

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  • Kaiser K, 2009 ‘Protecting Respondent Confidentiality in Qualitative Research’ Qual Health Res, Issue 19. No. 11
  • Allmark P, 2009 ‘Ethical issues in the use of in-depth interviews: literature review and discussion’ Sheffield Hallam University Research Archive, accessed 20 February 2018 <http://shura.shu.ac.uk/1372/1/literature_review_rer_.pdf>
  • Traianou A, 2014 ‘The Centrality of Ethics in Qualitative Research’ in Patricia Leavy (ed) The Oxford Handbook of Qualitative Research, OUP
  • Cavalli, 2016, ‘The FinTech effect and the disruption of financial services. The CIO , accessed 20 February 2018 <https://www.cio.com/article/3148756/leadership-management/the-fintech-effect-and-the-disruption-of-financial-services.html>
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  • Dietz M, Khanna S, Olanrewaju, T, and Rajgopal R, 2016, Cutting through the noise around the financial technology, McKinsey &Company, accessed 30  January 2018 < https://www.mckinsey.com/industries/financial-services/our-insights/cutting-through-the- noise-around-financial-technology>
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  • Marquardt M. (2014) ‘Leading with Questions: How Leaders Find the Right Solutions by Knowing What to Ask’, Jossey-Bass
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