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Over the next five years, the line between traditional financial firms and fintech services will continue to blur—so long as regulators don’t create hurdles.

Read: 5 ways your firm can adapt to change

As a PwC report points out, more industry leaders are looking at embracing new tech and innovation. The majority of those polled (88%) “are increasingly concerned they are losing revenue to innovators,” leading to 77% of institutions increasing efforts to innovate, with 30% investing in artificial intelligence.

The report, based on research and a survey of more than 1,300 senior executives in the global financial space, says 45% of survey participants are partnering with fintech companies, an increase from 32% last year. Of those who haven’t yet, 82% want to do so in the next three to five years.

The benefit is “technological advances will not only create a new digital experience for the customer but will also create increased security, more agile processes and reduce costs,” the report says.

The main challenge is that regulators seem to be falling behind. More than half (54%) of financial leaders surveyed expect there will be issues with data storage, privacy and protection as the industry changes.

And, the report says, “Incumbents see regulations as barriers to change and a source of uncertainty. […] They further identified digital identity authentication and AML/KYC issues as the second and third most concerning barriers, at 50% and 48% respectively.”

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Before investing in fintech, the report says firms have to first figure out the needs of the market, and invest selectively. This can lead to “incremental returns,” as they expand new products and services in stages. Eventually, firms expect 20% return on investment, the report says.

Read: How to invest in the robotics revolution

Canada’s Big Six banks are well on their way to innovation. On the back of solid 2016 performance, the banks are all responding to “the growing digital needs of consumers,” says a separate PwC report. The goal, the report notes, is to improve the client banking experience, and provide web and mobile services that don’t require trips to bricks-and-mortar buildings.

Improvements to banks may involve the use of fintech, blockchain technology and robotics, but compliance remains a concern.

Read: Banks look to fintech, regtech to innovate

During the last earnings season, two banks highlighted customers’ changing preferences. Laurentian said it plans to continue closing traditional bank branches in favour of advice-only and “technology-enabled” branches. Meanwhile, RBC also noted during a conference call that it, too, is focusing on technology, clients’ adoption of digital services and how to transform branches.

Read: 

How big data can make insurance better

How many advisors will robos replace

Insights from Canada’s first regulatory hackathon

Do human advisor fees offer more value than robo-advisor fees?

Originally published on Advisor.ca
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