Lack of trust, customer inertia and high acquisition costs are the three principal barriers preventing new entrants from growing market share within financial services, a new report claims.
A study from accountancy giant PwC cited a recent survey that found that 48 per cent of British consumers would not consider purchasing any financial product from a fintech.
“New entrants lack a trusted brand which…is especially important for financial services purchases,” the report said.
“Most consumers place strength of brand and reputation high on the list of criteria they use to select a business that will support and protect their financial wellbeing. This can limit the number of potential customers willing to try an untested new entrant.”
PwC also said that consumers take a relatively low interest in financial services products compared to other industries and rarely scan the market for new offerings. As a result, new entrants must have a significantly higher level of proposition differentiation to attract customers.
Due to this customer inertia, acquisition costs are high, the report added.
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“Many new entrants have spent millions on advertising campaigns and have still not been able to translate raised awareness into profitable scale,” PwC said. “For example, robo-advisors have had to spend up to £500 to acquire each customer, compared to incumbent banks who typically spend less than £100 to convert existing customers into investors.”
Aside from those three barriers, the report also said that regulatory requirements can be a challenge for new entrants due to complexity and costs.
The key to success for all market players will be working together in partnerships, PwC said.
It cited the example of Goldman Sachs partnering with Nutmeg to develop a stocks and shares ISA and BBVA acquiring Simple to develop a digital banking offering and partnering with Uber to launch lending and payments products in Mexico.
“These players are all looking to maximise their future relevance and success in sectors which may undergo disruption,” PwC said.