The future of finance is uncertain, with the banking ecosystem in a state of transformation. As banks struggle to meet rising customer demands and to adapt to changing legislation, the need for strategic partnerships is vital for continued relevance and compliance in this sector.
The digitalisation of banking has created a longing from both parties — traditional financial services and Fintech companies — to create alliances rather than to view themselves solely as competitors. The World FinTech Report 2018 reinforced this by suggesting that “Fintechs are increasingly looking to symbiotic collaboration with the traditional financial services firms they once sought to overthrow.”
In his article Why Banks and Fintech Need Each Other… And For How Long, Michal Gromek observes that the customer-centric value of Fintechs and the trust that traditional banks hold make for a strong force when paired together. In other words, as Morgan Stanley analyst Betsy Graseck so bluntly puts it, “pressure is mounting for banks to innovate and disrupt themselves fast before someone else ‘eats their lunch’.”
In an increasingly competitive world, financial institutions (FIs) will have to continue to focus on delivering innovative business models, as well as driving increased operational efficiency, transparency and personalisation. Working in parallel with Fintechs rather than in competition represents an obvious route forward even if it feels counter-intuitive to most.
However, if banks are stubbornly inclined to dig their heels in with an “I can do it myself” attitude, they could seriously fall behind the curve. Managing director of Europe Banking, at Accenture, Cecile Andre Leruste, advises, “banks collaborating with FinTechs can move more rapidly and more effectively than they could on their own,” which should result in the introduction of new products, streamlined processes and enhanced customer service.
Building technology, as Chris Skinner argues in his book Digital Human, is a process whereby everybody is essentially building the same thing as everyone else, one that is inefficient and takes the focus away from client relationships and services.
Attention should be focused on making Fintech companies secure, which can support FIs to remain compliant and speed up their procurement processes. Fintechs should add real value to traditional banks and deal with their key challenges, instead of unnecessarily adding flash features. With this said, innovation must not come at the expense of security, but have security “baked at its core.”
These partnerships, then, must address the real issues that financial institutions face, as raised in Thomas Reuters’ 2017 survey on regulation. An example of such technology is identity verification solutions, which allow banks to avail of the latest AML/KYC and ID&V technologies to ensure an efficient client onboarding process.
Increase of Platform Economy
The platform, or single API (Application Platform Interface), economy is transforming a number of sectors (think Stripe and payments) and serves as a wake-up call to banks. The essence of the movement is about technological integration, however, as technology officer Eli Rosner notes, “it is more about business model transformation and less about IT.”
The complex system champions both mega brands and individual businesses by creating “online structures that enable a wide range of human activities.” As the world adapts to a more flexible way of working, collaboration is key to keep all-hours platforms accessible. He argues that we will see a rise in cloud-based software, which renders imagined borders non-existent, but there will need to be an emphasis on protecting the ever-growing communities of people using the platform.
The world is becoming increasingly connected and “marketplaces have collectively had the biggest and most widely distributed positive economic impact of the last five years.” This movement is a struggle for regulated businesses, as the legislative scope changes rapidly to cope with the increased fluidity of the digital era.
In short, the loyalty towards traditional banks and excitement surrounding trending Fintech businesses marry up as a direct response to the sector’s current concerns. When Fintechs offer relevant solutions for the key issues that traditional banks slowly scramble to fix, a partnership works in both party’s favour, creating a win-win situation for everyone.
Adrian Black is CEO, NorthRow