Financial Technology's effect on the Swedish banking Industry - A study on competition and competitive strategies

Abstract

Titel: Financial Technology's effect on the Swedish banking Industry - A study on competition and competitive strategies

Authors: Douglas Wilsby, Industrial Engineering 2018, LTH; Knut Winström, Mechanical Engineering 2018, LTH

Supervisor: Ingela Elofsson, Division of Production Management at Faculty of Engineering LTH

Background: The rapid advancement of technology has the potential to disrupt established industries, including the banking sector. Companies that fail to adapt to technological shifts risk losing their competitive advantage and face challenges. As the banking industry undergoes digital transformation, banks face the challenge of aligning technology and business models to engage digital customers effectively. Banks must navigate the changing landscape to remain competitive.

Objective: Describe, explain and analyse how Swedish banks are affected by the emergence of financial technologies

Method: This thesis has an abductive and mixed methods approach and includes archival and documentary research, a case study and a comparative study of a selected group of FinTechs and banks.

Limitations: This work will limit to primarily Swedish banks or banks that have large part of their organisation in the Swedish bank market. The financial technologies described in the work will be based on Swedish financial technology companies. This work will also be focused on the bank market from a retail perspective and not from a commercial perspective.

Conclusion: Swedish banks are impacted by FinTech, with increased threats of entry, stronger buyer and supplier bargaining power, and
heightened rivalry. Banks are generally proactive and have started to collaborate with FinTechs to integrate innovative services and maintain differentiated, but face challenges in the evolving digital landscape.

Abstract (Swedish)

Titel: Effekterna av finansiell teknologi på den svenska banksektorn - En studie om konkurrens och konkurrensstrategier.

Författare: Douglas Wilsby, Industriell Ekonomi 2018, LTH; Knut Winström, Maskinteknik 2018, LTH

Handledare: Ingela Elofsson, Institutionen för produktionsekonomi vid Lunds Tekniska Högskola

Bakgrund: Den snabba teknologiska utvecklingen har potential att omvälva etablerade branscher, inklusive banksektorn. Företag som inte lyckas anpassa sig till teknikskiften riskerar att förlora sina konkurrensfördelar och ställas inför stora utmaningar. När bankbranschen genomgår en digital omvandling står bankerna inför utmaningen att anpassa teknik och affärsmodeller för att effektivt engagera digitala kunder. Bankerna måste hantera det föränderliga landskapet för att förbli konkurrenskraftiga.

Syfte: Beskriva, förklara och analysera hur svenska banker har blivit påverkade av finansiella teknologiers framkomst.

Metod: Denna studie har en abduktiv och blandad metodik samt inkluderar arkiv- och dokumentforskning, fallstudier samt jämförande studier av en utvald grupp FinTech-företag och banker.

Avgränsningar: Detta arbete kommer att begränsas till främst svenska banker eller banker som har en stor del av sin organisation på den svenska bankmarknaden. De finansiella teknologier som beskrivs i arbetet kommer att vara baserade på svenska finansiella teknologiföretag. Detta arbete kommer också att fokusera på bankmarknaden ur ett konsumentperspektiv och inte ur ett företagsperspektiv.

Slutsats: Svenska banker påverkas av FinTech, med ett ökat inträdeshot, starkare förhandlingsstyrka hos köpare och leverantörer samt ökad rivalitet. Bankerna är i allmänhet proaktiva och har börjat samarbeta med FinTechs för att integrera innovativa tjänster och behålla sin differentiering. Bankerna står däremot inför utmaningar i det föränderliga digitala landskapet.

Popular Abstract

The rapid advancement of technology has the potential to disrupt established industries, including the banking sector. Companies that fail to adapt to technological shifts risk losing their competitive advantage and face challenges. As the banking industry undergoes digital transformation, banks face the challenge of aligning technology and business models to engage digital customers effectively. Banks must navigate the changing landscape to remain competitive and fend of the threat of new entrants.

The findings of the study shows that the Swedish banks are affected by Fintech in several ways. FinTech's entry into the Swedish banking industry has increased the threat of entry, strengthened the bargaining power of buyers and suppliers, and increased the rivalry of the incumbent banks. FinTechs have done so by leveraging technology and customer mobility to compete in the industry by offering customers new innovative solutions.

The increased customer mobility is mainly due to the digitalisation of the industry. However, new regulation has opened the value chain resulting in new opportunities which FinTechs quickly seized with the most successful example being Klarna, that revolutionised the payment industry. As consequence of the new open value chain, FinTechs have become both suppliers and competitors to the banks. Subsequently, the universal banks take the threat of FinTechs seriously. Resulting in that the universal banks have started to proactively work with FinTechs to create strategic partnerships and integrate FinTechs innovative services into their own offering.

The collaboration between Fintech and banks seems to be fundamentally based on FinTechs targeting small segments and great offering. This specialisation characteristics of FinTechs might be a consequence of FinTechs avoiding the traditional entry barriers. However, the current industry barriers are still significant.

Furthermore, the comparative study of the incumbent banks and FinTechs shows that the changing industry dynamic has of yet not severely impacted the positioning of the incumbent banks. However, banks are positioned quite differently compared to FinTechs as FinTechs are more focused on cost and is offering less customised services. This might become a problem for banks as the trend of using online services increases. The number of banks branches has decreased significantly and the comparative advantage of offering personalised services is getting weaker.

But as the banks works proactively and by investing in FinTechs early and integrate their services into their own offering might limit the impact of FinTechs. As the banks strategy are largely based on differentiation in relation to FinTechs, cooperation with FinTechs or using Fintech suppliers might become essential to keep their comparative advantage.

Since most industries pass though periods in which the landscape is changing. Getting an understanding on what is changing and what is staying the same is highly valuable information for both existing competitors as well as new potential entrants. Furthermore, the knowledge of how FinTech and banks operate not only as competitors, but also as partners is of importance for the industry stakeholders.

• author: Wilsby, Douglas and Winström, Knut
• supervisor: Ingela Elofsson
• organization: Production Management
• course: MIOM05 20231
• year: 2023
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: FinTech, competition, competitive strategy, digitalisation, technology, Open Banking, Strategy, Business model, Digital.
• report number: 23/5711
• language: English
• id: 9121940
• date added to LUP: 2023-06-14 17:43:12
• date last changed: 2023-06-14 17:43:12