Why working together can help banks and fintechs forge a strong future
Collaboration is a word that is thrown around a lot in business. It’s spawned countless quotes from leading business minds often talking about the importance of shared knowledge, experience and innovation. For once, the traditional ideas of collaboration are out of kilter, because banks and fintechs see collaboration differently. Where traditional collaboration centres on engaging disparate groups of people, accentuating the team notion to improve performance, in banking and fintech circles, collaborating with fintechs is increasingly a critical success factor.
The Capgemini World Fintech Report 2018 says that collaborating with fintechs is essential for traditional financial services firms to survive, let alone grow. It’s not so much a matter of innovation and skills, it’s quite simply the only way banks can meet the expectations of today’s (and tomorrow’s) business customers. The report says that the respective competitive advantages and shortcomings of fintechs and banks make collaboration a logical fit.
“Fintech firms’ primary competitive advantages are their agility to launch and pivot, their laser focus on customer experience, and their freedom from the burden of legacy systems,” says the Capgemini report. “However, they also face challenges in scaling their business due to a lack of trust, absence of a known brand, an established distribution infrastructure, capital, and regulatory compliance expertise that, historically, are the strengths of incumbent firms.”
For banks there is an additional advantage to collaborating with fintechs – access to data. While the banking industry is still undergoing digital transformation, fintechs already have a wealth of customer and usage data that will prove increasingly valuable. This data has already helped shape fintech customer service and R&D. It has also established consumer-like personalisation for businesses, offering a flexibility only previously seen on a retail level.
“Banks used to have truly well-rounded financial relationships with their customers,” says Bradley Leimer Managing Director and Head of FinTech Strategy at Explorer Advisory & Capital at Capgemini. “But banks have now allowed the disintegration of customer-centric products and services and that’s where fintech solutions come in. Banks need to learn from and collaborate with the best fintech firms to ensure customer relevancy in the future.”
Part of this process is establishing ecosystems. Increasingly, we are seeing a need for a broad set of features and applications, developed and shared. This includes everything from virtual cards through to expense management and reporting, all integrated with customer networks and financial applications. It’s new thinking for banks and a significant cultural leap for them. But this is where the data can help. Fintechs can provide a wealth of data illustrating customer demands and usage, for instance. This data can already show how businesses are changing and how they want to move forward with their banking.
Accenture’s Mind the Gap: Addressing Challenges to Fintech Adoption report suggests this approach will help “streamline and simplify concept decision making”, enabling greater experimentation and proof of concept testing through sandbox areas. The report adds that these safe work areas, where concepts can be tested using simulated feeds and masked data in a sequestered environment, “are already increasing speed and efficiency in the financial institutions that have provided them to fintechs.” Clearly fintech data has a significant role to play in driving collaboration and the sooner banks grasp the opportunity, the better.