Podcast transcript: Agents of Change Growing up and growing out: global FinTech adoption

Roger Park

Welcome back to the Agents of Change podcast series. I’m Roger Park, EY Americas Advisory and Financial Services Innovation Leader, and the series host.

Our guest today is Matt Hatch, Americas FinTech and Financial Services Markets Leader with EY. Great to have you back Matt. Why don’t you tell us a little bit about yourself for our audience and what you’ve been focusing on since you last joined us on the show.

Matt Hatch

Good morning Roger, good to be here. Thank you for making time for me. It’s good to be joining you in this conversation. A little bit of background for myself.

I have been running around the Bay Area for the last 20 years here at EY, working across FinTech, financial services and technology companies for the majority of my career, focused in a lot on working with innovative companies and entrepreneurs, helping them be successful in any way that we possibly can to try to promote innovation in this industry.

Park

That’s great Matt, thanks for joining us again today. You’ve just launched the third Global FinTech Adoption Index. Congratulations on that. What have you seen in the 2019 version that sparked your interest?

Hatch

Thanks Roger. It’s a great feeling to launch the survey. It has been, as you mentioned, 2017 and then 2015 before that that we did this. It’s a massive effort, a lot of data, a lot of coordination across our global teams. So, congrats to the team behind this. It’s comprised of over 27,000 individual surveys that we’ve accumulated to analyze and to look at what is really driving adoption of FinTech at the consumer level, and this year also at the SME level.

So, for the first time, we’re looking at how some small and medium-sized enterprises are actually adopting FinTech as well. When I reflect on the survey and what we’re seeing right now, I think initially you know there’s questions several years ago around is this a matter of if or when. It’s now, right? And that’s becoming very clear in the data and it’s now and it’s how that we’re starting to look at and really learn a lot around how innovation is occurring at the consumer level and at the SME level.

So, a couple of things right off the bat here. The global average has moved from 36%. And we had predicted that it would grow to 52%. So that was 36% two years ago and we thought it would jump to 52%. It’s actually 64% across the 27 markets that have been studied. So, it jumped quite a bit higher than we had even expected. And it’s interesting because when we had looked at this in the past, awareness was one of the key issues that was preventing consumers from adopting. And now we’re seeing just widespread awareness and including 96% of respondents globally are aware of at least one money transfer or payment FinTech service. So, awareness has really dropped off as an inhibitor to using FinTech products.

Secondly, many financial incumbents, such as banks and insurers, are now offering very credible FinTech or innovative solutions for consumers. And the other big change that we’re starting to see is it’s not just the incumbents or the FinTech providers, but the ecosystem is becoming much, much more diverse and, quite frankly, much more complicated. We see a lot of the technology players, telecom players and others that are globally now, introducing products and working across the financial services value chain.

The relationships I think that we looked at in the past were really about the challengers and collaboration between the challengers, the FinTechs and the banks. But now, we’re seeing that across a much more diverse FinTech ecosystem, if you will, and the agility and the industrialization of innovation are quickly becoming the new normal within financial services.

Park

Those are impressive rates of adoption and awareness Matt. I thought our expectations were pretty aggressive in 2017 and we’re starting to see it much higher that what we even expected. So that’s very interesting. And I think with the new entrants, outside of financial services, they’re probably bringing their customer bases as well, and changing the game.

One thing I noticed in the data is that the US adoption rate’s at 46% vs. a global rate of 60%. Do you have any thoughts on why the US may be lagging in this space?

Hatch

Yeah, so there’s a couple of things I think happening globally that are driving that. One is open banking. I know we’ve talked about that on your podcast in the past.

Open banking certainly in the UK and parts of Europe, Singapore as well, have been very big advocates for establishing FinTechs within the ecosystem and the usage that has prevailed in those areas.

The other is propositions for FinTech in the US have been perhaps a bit more narrow. When you compare it to what’s going on in Asia, as an example, with some of the mega apps that have many, many financial services products embedded in them, not just the payments, but also lending and investing types of products all within one ecosystem, they’re making it easier for the consumer to adopt multiple FinTech products, which is really driving the adoption numbers up globally.

So, in the US, we’re watching that, we’re certainly learning from that and I expect that over time we’re going to see the FinTech propositions broaden and the consumers be pulled into more and more of the different types of FinTech products.

Park

Yeah, that actually makes a lot of sense Matt. If FinTech services are built into your messaging apps or your shopping apps, we’re obviously going to see a lot more adoption there. Very insightful.

I know we’ve done this for several years now, but as the FinTech Adoption Index has evolved over the years, what’s different about this year’s edition that our listeners can look forward to?

Hatch

We interviewed this year 27,000 consumers in 27 different markets. We looked at not only how FinTech has improved and expanded its offerings around the world, but also how it has stimulated a change across the entire financial services industry. To put it simply, it’s about FinTech making financial services more accessible for both consumers and businesses.

One of the things that set this year apart, certainly the case studies have evolved and a lot of the entrepreneurial companies that we’ve profiled in the report really speak into the specific areas of FinTech innovation that they’re championing. And we’re seeing that, not just with new entrants, in terms of small startup companies, but also some of the legacy financial institutions that have introduced new products and services.

And this year, we also introduced a survey of over 1,000 SMEs, so small and medium-sized businesses in five markets. So, the UK, the US and then three emerging countries: China, Mexico and South Africa.

Park

That’s a great extension to the original scope of the index that was focused on consumer adoption. What is the difference between the average adoption between consumers and SMEs?

Hatch

For SME adoption, globally, what we’re seeing is it’s consistent with consumer adoption. China is really leading the way here. China for consumer adoption’s at 87% and 62% for SMEs. When you compare that to the global average of 64% for consumer adoption and just 25% for SMEs. So, there’s still quite a ways to go here for SME adoption and you think about and reflect on the evolution we’ve seen over the years with consumer adoption. It’s interesting to learn from the consumer-based trends that we’ve seen over the last couple of years and to think through what’s happening in the SME world.

Our bar for SME adoption is actually quite a bit higher. We’re measuring this in four different areas: banking and payments, financial management, finance and insurance. And our benchmark, if you will, in terms of what adoption is, is to apply SMEs who are using FinTechs in at least three of those categories. So, the bar is a little bit higher, which has an impact on the usage. The US adoption is at 23%, so pretty close there to the global average and higher than all the other countries that we surveyed, except for China.

Park

Even with the higher bar for adoption for SMEs, that seems like a pretty big gap between consumers and the small and medium enterprises. What do you think is driving that gap?

Hatch

SMEs, I think, are at a different point in their adoption journey compared to consumers. The top reason for consumers to use a service provided by FinTech is the attractiveness of the rates and fees, and you compare that to some of what’s driven behaviors at the consumer level. So, yes, consumers are very much focused in on rates and fees. Payments have certainly led the way at the consumer level. What’s different is what we found that 98% of the SMEs have a team specifically chartered to look after new software, new technology, new tools.

And, so, both the teams that they have to look after new technology and new software, but, as well, they’re really relying on their advisors. So, their accountants and the technologies that their accountants are actually working with them on. So, whether it’s a small accounting package or others that are introducing them to these new FinTech products as an advisor. So, there’s some commonality and there’s certainly some distinct differences here in terms of what’s driving adoption.

Park

Yeah, it sounds like just integrating the new FinTechs into the existing infrastructure and ecosystems would take some time and energy.

I know we only have time to scratch the surface of the index today, but I do want to hear about what you and the team are looking at from the perspective of the next wave of FinTechs, building on the next wave of consumer financial services podcast we did a few weeks ago.

Hatch

Great point and certainly when we think about the next wave for FinTechs and reflecting more broadly, the next wave of consumer financial services that I know you and Nik Lele talked about in the prior podcast. There’s a lot of commonalities. There’s a lot of what we’re seeing in this survey, and then more broadly in the ecosystem.

As I mentioned earlier, the ecosystem is becoming increasingly complex. It’s not just the FinTechs or the incumbents, it’s now much more of an ecosystem inclusive of technology players, telecoms and others. So, we’re seeing that sort of maturation across the industry and the complexity clearly increases.

When I reflect on the state of that ecosystem right now, it is extremely healthy. There is a lot of focus from a regulatory perspective on this. There’s a lot of focus from investors. There’s a lot of networks out there available for entrepreneurs to be very successful in this space. And there’s just an increased willingness and expectation from a lot of the larger institutions out there, whether it’s a bank or a technology company, that the bar is raised, that the consumer’s expectations are changing, that they have to work together across this complex ecosystem in order to be successful. And we’re seeing that drive a lot of continued investment in this space and what’s driving a lot of changes in FinTech products and financial services that we’re seeing drive this adoption.

Digital trust, and I know you talked about that again in the last podcast, has been a very significant factor. We see that in the data that has been a key factor that drives adoption. And the willingness to share data is certainly something that must be earned and must be brought by a very clear proposition from the FinTechs or the SME FinTech provider. So, we saw that in both of the sets of data.

Park

Yeah, I think that’s a common theme across a lot of the research that we’ve been seeing Matt. Just important stuff. Trust between consumers and their financial services providers and, in this case, also the small and medium enterprises as well. Like we said in the last podcast, we think there are over $11 trillion of assets in play for the companies that can acquire and maintain the trust of the consumers.

Matt, this report is full of amazing statistical data. That’s fascinating. But you also mention some case studies. Were there any themes that came out of the case study reviews that you did that you would like to share?

Hatch

Yeah, so the case studies, which you’ll find toward the back of the report for those that pull up the full report online, the case studies have profiled executives and entrepreneurs from a number of FinTech companies across the globe. When I look at those case studies, it’s interesting. There’s a couple of themes that quickly pop out for me. One is this very acute focus on the customer experience.

And, so, how does that company think about embedding their product to make it easier for a consumer to do something, either to save or to invest or to make a payment? So, they’re very focused on that. They’re very focused in on how does their company enable that in a seamless and in a positive user experience manner.

The other is trust. And I think you’ll quickly see from all of the comments that while they understand their opportunity to make a great experience for the customer, that it’s not going to be enabled by anything less than a highly trusted environment and a highly regulated environment, and so being compliant, being very focused in on the trust, and as well as the experience, is a theme that comes out through a lot of those. And those case studies, I think, are great because they cover small, new startups, as well as larger, incumbent institutions that have introduced new FinTech types of offerings.

The report is out now. It’s available on ey.com/fintech.

Park

Well Matt, I know this is just a teaser for the report and I know I’ll certainly be digging through it as most of our other audience members who are data junkies will. There’s a ton of good data in that report.

Any final thoughts or reflections on what you think is most interesting coming out of this year’s FinTech Adoption Index?

Hatch

As I said, it’s not a matter of if, it’s really not a matter of when. It’s clearly now. It’s clearly a question on how this will happen over the next couple of years. As we talked about this ecosystem getting more and more complex, one of the things I’ve said in the years past is that we’ll know we’re successful when FinTech really is losing its relevance as a term because we just use this industry as an innovative industry and one that is improving customer experiences and integrating into our lives in a much more meaningful and a much more positive way in terms of the outcomes of the FinTech and financial services that we need and consume.

And I think we’re starting to see that in this data. We think we’re no longer thinking about this at the level of how relevant is it? And will FinTech survive? I think we’re starting to see sort of through to the end here, and as we look forward, I’m really excited about the level of innovation that we’re going to see across this increasingly complex ecosystem.

Park

I’m excited too, Matt. Matt thanks again for coming in today for another podcast with us and sharing your insights on the global FinTech Adoption Index.

Before I wrap up today’s podcast, I’d like our listeners to get more of a behind-the-scenes perspective into what makes you tick outside the office. So, without further ado, can you tell me what’s the one thing you like to do to challenge yourself every day?

Hatch

I think one of the things that I really try to focus on is just looking outside of our normal context, right? So, thinking about experiences and looking at commerce and trying to figure out what it really means from a FinTech, from an innovation perspective and try to bring those learnings outside of our world into what we can do on a day-to-day basis.

So, just observing merchants and how they serve customers and watching people interact with each other at coffee shops and try to figure out what are we doing in the FinTech community and financial services community to drive innovation that will improve folks’ lives.

Park

That’s great advice and who doesn’t like to do some people watching right? Which book on FinTech or financial inclusion would you recommend to our listeners? Something you’ve read recently that you like.

Hatch

Yeah, so I just finished reading a book not necessarily FinTech or financial inclusion, but by a very inspirational leader called the Trillion Dollar Coach. It was someone I had the opportunity to present to about 10 years ago and just an incredible leader and certainly has made a pretty big impact on many of the technology companies, and even those that are now in the FinTech space, here in the Bay Area the last 20 or 30 years. It was a great read.

Park

That’s a good recommendation. I’m putting it on my list too.

And which headline do you think we might read in The Wall Street Journal 10 years from now Matt?

Hatch

I think we will not be looking at adoption rates anymore because I think we will have proven the globe is now connected and using financial services products. I think we will be clearly midway through the journey of rewiring financial services. There will still be work to do in that.

I don’t think we’ll be claiming victory, but certainly still a ton of accomplishments I think we’re focused on over the next 10 years. And we’ll start to leverage those investments for the future ahead of us. So, certainly an exciting time here and a lot to do.

Park

I like that vision. Rewiring financial services so that all financial services look like the FinTechs today. Matt, I asked you this question last time you were on the podcast, but what skill do you think our listeners should be teaching their kids?

Hatch

Well, after the golden rule, of course, Roger, and I also wonder is the question right? I mean, maybe it’s what our kids should teach us these days given how much they’re using technology, and I often learn a lot from my kids about how they’re thinking about their social interactions, how they’re thinking about making payments or saving.

I do think we’ve got to get kids investing earlier, and as I said, I think learning from them might be the “aha” that I’ve begun to have over the last couple of years that I’m very focused on.

Park

Matt that’s excellent advice! And there’s certainly quite a bit I’ve learned from my six-year-old son, at least when it comes to installing mods on Minecraft. But looking forward to learning more from him on his perspective on FinTechs and financial services as well.

Now, I know a lot of folks are going to be wanting to reach out to you after this podcast. Matt, what’s the best way for them to connect?

Hatch

The best way to connect with folks is on LinkedIn for me. I occasionally am found on Twitter, but less frequently. So, please do reach out on LinkedIn and we’ll be posting the Adoption Index, sending it out as of today and it will be available on LinkedIn as well as ey.com/fintech.

Park

Excellent Matt. Thanks again. And in closing, just want to remind listeners that you can make suggestions on topics, guests or questions on Twitter using #agentsofchange, or on the podcast homepage that can be found on ey.com. Thanks for your time and our next podcast will be four to six weeks.