Industry interests stop technology from truly benefiting savers through low-cost products, members of the start-up community have said.
Fintech is widely seen as the next big thing that could also transform pension saving, in the form of the pensions dashboard or robo-advice.
What incumbents won’t do is change their cost base quickly enough to compete
Anne Boden, Starling Bank
However, to deliver better outcomes through technology, established companies might have to change significantly in terms of culture and business model, which for many might not be feasible or desirable, technology experts have said.
At an event organised by consultancy Hymans Robertson on Wednesday, a panel of pensions and technology experts debated whether it was the financial services industry or technology companies that will lead fintech innovation efforts.
'Wrong' incentives structure
James Gin, chief data scientist at DataSine – a start-up combining psychometrics and technology to predict bank customers’ behaviour – said the route for start-ups into big financial services companies was often strewn with obstacles.
He explained that financial services behemoths often ask start-ups to work on specific products but then don’t purchase them.
“We found it incredibly difficult to sell into innovation departments,” Gin said, adding: “I think there is something wrong with the incentives structure perhaps of that department.”
Source: EY (note: the figures show fintech users as a percentage of the digitally active population)
He said core research departments, run separately from innovation centres, were often easier to get in touch and work with.
Anne Boden, chief executive and founder of Starling Bank – a mobile-only ‘challenger’ bank – said it was difficult “to embrace change in a big organisation”.
Many incumbent providers are “very, very capable” of copying products by challenger companies, she said.
But “what they won’t do is change their cost base quickly enough to compete, so they can offer all those services to greater segments of the population at a price that means they can also be profitable”, according to Boden.
She pointed out that challengers often only have a small market share, while the bulk remains with incumbents, meaning there is little push for them to change their business models.
Industry afraid of diluting brands
Jamie Jenkins, head of pensions strategy at insurer Standard Life, said incumbents had other things to consider as well, mainly protecting a strong brand which could be “diluted” by bringing it into a market where it might be unknown.
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On the other hand, a strong brand can easily compete with challengers according to Jenkins.
He cited experience in the US, where new robo-advice companies had got traction only to lose customers to existing financial services companies when these eventually entered the space.
“There is an incumbent challenge on the industry to react to change in terms of how it deals with this… but there is the strength of the brand and the history to take account of,” he said.
Chris Noon, partner at Hymans Robertson, however, was unconvinced.
“I think we’re going to see more consolidation of some of these big players, and some new market players,” he said.
