Businesses are facing substantial financial losses due to various sources of tension within their financial technology ecosystems, with cyberthreats and fraud leading the way. New research from FIS, in collaboration with Oxford Economics, reveals that organizations are losing an average of $98.5 million each year. However, the research indicates that fintech companies specifically experience an average loss of $64.4 million annually.
The study, titled “The Harmony Gap: Finding the Financial Upside in Uncertainty,” surveyed 1,000 C-suite business and technology leaders across the U.S., the U.K., and Singapore. It provides a detailed look at the financial impact of issues like cyberthreats, fraud, and regulatory complexities on businesses, with a particular focus on the fintech sector.
Key sources of financial tension
The research quantifies the financial impact of various sources of tension:
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Cyberthreats are the most costly, averaging $31.7 million in losses per year.
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Fraud follows at $21.6 million.
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Regulatory and compliance issues cost an average of $14.9 million.
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Operational inefficiencies contribute to $11 million in losses.
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Human errors and reworks result in an average cost of $6.2 million.
Other factors include financial losses due to reputational damage ($4.9 million), payment processing friction ($3.3 million), fintech skills gaps ($2.9 million), and illiquidity ($2 million).
Fintech sector impact
The financial services sector, which includes fintech, faces significant challenges. Among the sectors surveyed, technology companies reported the highest average cost of disharmony ($113.6 million), followed by insurance ($104.8 million) and financial services ($93.6 million). Fintech companies reported the lowest, with average losses of $64.4 million.
Geographic differences
The study also highlighted geographic variations in the cost of disharmony:
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The U.S. has the highest average cost at $108 million per year.
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Singapore follows with $95.7 million per year.
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The U.K. reports an average cost of $89.6 million per year.
Friction “money in motion”
Organizations reported the most significant friction in the “money in motion” phase, where funds are transferred between accounts and entities, such as in payments, treasury, and risk management (51%).
Cyberthreats and fraud prevention
Cyberthreats remain a critical concern, with more than one-third of respondents reporting daily occurrences. Despite this, only about half of the surveyed companies regularly train employees in fraud detection and prevention. Insurance firms are an exception, with 75% emphasizing employee training for fraud prevention, compared to 43% of fintech companies.
Fintech adoption and preparedness
The research indicates that approximately one in four companies surveyed do not have dedicated fintech teams. However, organizations with dedicated fintech teams feel better prepared to address challenges. 85% of these organizations reported feeling moderately or very well-prepared to handle issues within their financial technology ecosystem.
Moreover, over four-fifths of surveyed executives have implemented embedded finance solutions, which has led to an average sales increase of 8.5%.
Strategic implications
These findings underscore the importance of strategic fintech adoption and robust cybersecurity measures within the financial sector. Companies that invest in dedicated fintech teams and prioritize employee training are better positioned to mitigate financial losses and drive growth. The study also highlights the potential of embedded finance solutions to boost sales and the need to address vulnerabilities in the “money in motion” phase.
The full study results will be released at the FIS annual Emerald conference in May.
