Partnership or protectionism? Banks need to think carefully about how quickly services are changing
“The dynamic Fintech scene,” says a report from consultancy firm Roland Berger, “is likely to be a forerunner of bigger changes to come. Established companies have to take their chances.”
The Fintechs in Europe report revealed that two thirds of European Fintech startups eye strong revenue growth over the next 12 months. How established banks react and work with these businesses is crucial to the immediate and long term future of the industry.
Roland Berger’s Martin Krause-Ablass says that while Fintechs have a realistic view of their role in the market, “they alone will not herald a revolution.” He maintains that FinTechs need the banks.
“What banks and insurance companies themselves can get out of collaborating with FinTechs are opportunities to drive their own digital transformation,” Krause-Ablass explains. “For them, this is about more than technical disruption, it is also about cultural transformation.”
The idea here is that FinTechs can help trigger a culture of innovation and change. This obviously has merit, but how long will this transformation take? How much time have traditional organisations got to play catch-up? The race is already on and not just in Europe. As the Capgemini World Fintech Report 2017 reveals, FinTechs are growing globally.
According to Capgemini’s numbers, China (84.4%) and India (76.9%) are seeing the highest levels of FinTech adoption, especially amongst younger, tech-savvy, affluent customers. France (36.2%), Belgium (30.4%), and the Netherlands (29.8%) currently have the lowest adoption rates, but there are some significant trends here in terms of technology.
Blockchain, for example, continues to penetrate the industry and payment authorization. Capgemini reveals that clearing and settlement (78.9%) and cross-border payments (77.5%) were the most popular use-cases for blockchain in 2016. This uptake will only increase in 2017 and at a more exponential rate.
Traditional banks, meanwhile, still hold “a modest ‘trust’ advantage over non-traditional [organisations]. Only 23.6% of customers say they trust their FinTech provider compared to 36.6% for traditional firms,” says Capgemini’s report. However, as time marches on this will change. While 59.2% of banks are apparently developing in-house FinTech capabilities, 60% of traditional firms are open to partnership with existing startups.
A partnership can accelerate service offerings and boost levels of customer satisfaction and loyalty. Building in-house capabilities may ultimately mean more overall control and IP retention of any technology developed. But how long will this take?
Don't get left behind
As Neal Cross, Chief Innovation Officer for DBS Bank warns in the Capgemini report, “just building a couple of products that are cool is fundamentally not going to be enough to rewire your organisation for the new world of digital and the wave of disruption we are going to see.”
Banks need to partner up, not re-invent the wheel. It’s the safest, arguably most efficient way to take advantage of technology change. If banks want to develop their own technologies for the future, they should do so in tandem with technology partners, or risk being left in the wake of those already delivering digital solutions.