PwC, one of the “Big Four” auditors along with Deloitte, EY and KPMG, revealed in its new study that banks and financial institutions are experiencing major losses in revenue due to the emergence of Fintech companies and service providers.

Alibaba’s Ant Financial, for instance, operates a financial network and application called Alipay, which is valued at over $70 bln due to its massive user base of 400 mln registered users and annual payment volume of $519 bln.

Although Bitcoin and other cryptocurrencies are also threatening the raison d’etre of the global financial system, Alipay and its market cap, which is more than three times larger than that of Bitcoin, has proven the potential of Fintech across the globe.

In March, Cointelegraph reported that Alipay was recruiting Blockchain engineers and experts to focus on the development of Blockchain-based applications. In fact, Ant Financial CEO Eric Jing stated that the company hopes to utilize Blockchain to underpin Alipay in the long term, the same way Blockchain supports the Bitcoin network. Essentially, Jing noted the possibility of utilizing Blockchain with cryptographic signatures to secure and process millions of transactions on a daily basis.

Other Fintech companies outside of Asia such as TransferWise have raised multi-million dollar funding rounds at over a billion dollar valuation. TransferWise in particular raised $26 mln in May at a $1.1 bln valuation.

TransferWise optimizes the current global financial and banking system by allowing users to send and receive bank transfers in less than two days, which typically take over a week.

Banks’ leverage

Alipay is also associated with fiat money and is based on the Chinese yuan. With these leading Fintech companies, banks can secure partnerships in order to innovate their own platforms. Since applications like TransferWise and Alipay can’t operate without the global banking system, banks have a leverage over these startups.

Bitcoin poses a completely different threat in the sense that it offers a new decentralized infrastructure designed to overthrow the global banking system. Bitcoin wasn’t introduced to optimize financial operations of institutions. It was introduced to replace financial institutions and intermediaries.

In order for banks to stay on par with financial innovation and revolution, Manoj Kashyap, the Global FinTech leader and partner at PwC US, explained that they need to partner with Fintech startups with innovative vision and long-term strategy.

“Innovation is happening outside of the organisation, with emergent technologies being leveraged by startups, and if financial Institutions want to speed up their innovation they need to significantly increase their collaboration with FinTech companies,” said Kashyap.

Outdated technologies

The CEO of a Latin American Fintech company reaffirmed that banks and traditional financial institutions operate on outdated technologies and therefore struggle to adapt to changes accordingly. He told PwC:

“Traditional Financial Institutions are too slow in implementing things. For a startup it takes no time to adapt to new circumstances and make changes accordingly. Incumbents take forever. Integrating with them is a nightmare because they lack the culture, know-how, and they lack the incentive.”

In the future, PwC researchers stated that a trend will form in which banks will fund startups and secure tight partnerships with Fintech innovators to ensure that their platforms and applications maintain efficiency.

Already, the Fintech and cryptocurrency industries are observing this trend.