Navigating FinTech disruption is on top of the executive agenda of the traditional Financial Services organizations. FinTech start-ups continue to attract investment with the total invested globally at $3.2 billion in Q1 of 2017 . The growth is fueled by the “growing discontent in traditional banking models, demands for accountability and an increasingly digitally focused customer base” that has reiterated the core needs for new modes of finance in a the diverse and complex world”, according to Innovation Finance. In this blog we will discuss the framework for banks to establish working partnership relations with the FinTech companies that are mutually beneficial.
The pace of change in the sector of the Financial Services at the convergence of Finance and Technology is only accelerating. The companies now have to look beyond the digital transformation into the technology forces behind the Fourth Industrial Revolution fueled by the convergence of the digital, physical and biological realm. It has a potential for the profound impact that the technologies such as AI, VR/AR, machine learning will have on income inequality, informal economies and payment systems for billions across the globe.
This is already a daily reality for front runners, who are providing solutions to the unbanked and underbanked and redefining the ways in which customers interact with money.
Not many traditional banks that are the largest informational companies in the world, can keep up with those changes, given their legacy systems and processes. Which brings to the front the importance of partnering with the newcomers. This topic was recently discussed by a panel of prominent FinTech thought leaders titled “New Rules Of The Game: Partnership Instead Of Competition”.
Watch the video to find out how financial services organizations may benefit from the new technology solutions centered around connectivity, interactivity with customers, real-time decision making as well as automating and digitizing processes. Learn about the best practices and frameworks for building the FinTech – Banks partnerships:
When the global economic crisis hit big and small companies, many of them adopted a shift in approaches to be able to survive the turbulent economy. The world’s largest banks, however, have mostly opted out of this change because of the belief that they were “too big to fail.” And in most cases, the approach worked.
But a decade later banks have lost balance and lots of income because of the rise of financial technology start-ups. Labelled as “FinTechs”, these companies have shown such great growth in such a short time, that they left lots of traditional financial institutions in awe. The “banking-as-usual” had created a vacuum that these startups were able to break into with innovative, groundbreaking solutions that introduced ease and accessibility into the world of finance. And what do customers want? They want new and more convenient ways by which they can use digital devices to pay for goods and services, something offered by FinTech companies abundantly.
Just to see how massively FinTech startups have taken over the financial niche, let’s look at some stats:
Total global investment since 2010 has been $80 billion. Dollars invested grew from $12.7 billion to $13.6 billion year over year. (source)
Another 15.4% list lower rates as the number one reason that attracts them to FinTech. Other common reasons include access to a wider range of products, better user experience and the fact that FinTech companies are more “trustworthy” than banks.
The way FinTech companies are taking over huge proportions of the financial market has left banks with the need to embrace this coming change. The FinTech industry isn’t prone to the friction that appears in lots of niches with technological backgrounds, so there is large ground for a number of business models and approaches that are able to offer better experiences for the end user. This competitive advantage that these companies have over banks is the reason why trying to compete is not the cleverest decision for traditional financial institutions. Given that technological innovation isn’t going to slow down anytime soon, banks have to adjust their operations and choose the path of partnership with FinTech companies. How should this happen?
Partnerships are possible between traditional large financial institutions and disruptive financial innovators like FinTech companies. FinTech startups are going to disrupt 25-30% of the banking system’s value chain. This is what analysts say. But instead of sending the whole banking reality into chaos, there is real ground for cooperation between FinTech companies and banks.
Therefore, the question isn’t if these new disruptions will transform banking as they have already started doing so, but rather how to partner more successfully within the new financial ecosystem. The new strategy is partnership instead of competition.
Why do banks lag behind in terms of innovation? Generally speaking, there are two main reasons:
Approaching the topic of partnership
What are the advantages of banks and what are the advantages of FinTech companies that can bring the two to work together?
In order to cooperate successfully, banks have to integrate the advantages FinTech offers into their processes, giving way to some innovation and a change in approaches.
FinTech companies use data in a competitive way that banks still can’t come around and this is one edge for cooperation. FinTech has an open platform vs. bank’s close platform. The internet is open. The role of data overtime is not about ownership but about knowing the end users.
So, FinTech companies can offer the following:
These are the points for true partnership between the two drastically different players. Close, continuous communication is essential for any potential banking/FinTech relationship to work. Banks need real oversight and deep involvement. This means they don’t view FinTech innovation as some necessary “evil”, but are rather willing to work enthusiastically on mutual goals, taking them into the customer-friendly zone, something so necessary to stay competitive!
If you are interested in the latest tech innovations for banking and Financial Services industries and to meeting with top FinTech companies of Silicon Valley, attend “Navigating FinTech Disruption” Silicon Valley Immersion program for Financial Services executives.