The banking industry is under threat as never before, and it needs to adapt or face the consequences. How can it go about this change, and is the answer more collaboration with cloud-based and agile fintech firms?
[easy-tweet tweet=”Most of the innovation in financial services is to be found in the #fintech startup eco-system”]
There was once a time when no-one would have predicted that Microsoft would ever be toppled from a position of worldwide dominance in business software and systems. But just as it and other behemoths of the tech industry – Nokia, IBM, Blackberry – have come under sustained attack and have had to reinvent themselves, shrink or both, as a result of the disruption brought by cloud-based and more agile businesses, it’s clear that banks will have to engage strongly in digital in order to remain relevant in the shifting economy.
But how easy is this for banks, which are usually very big, not that agile and unable to respond quickly to changing market conditions? This, allied with the severe threat posed by supermarkets and other providers means that the banking industry itself could be at risk. How can banks address this, and rather than missing out, is the answer collaboration with smaller, more agile fintech providers?
Digitising services is not enough
The rise of digital has been astonishing, and banks are aware of the need to change and adapt their offerings. They are investing significant sums in replacing legacy systems, and working to upgrade capabilities so that customers can now do online what they once could only do in branch. However, the problem is that by digitising existing services, banks are simply doing what their customers expect of them: moving a service to a different channel.
The reality is that these developments are nowhere near as innovative as customers now demand. Industry analyst group Gartner highlighted this in a July 2015 webinar on Managing Innovation and Digital Transformation in Financial Services, pointing out that while banks are busy digitising services, they should in fact be digitising the entire business.
Collaboration is key to a healthy banking industry
However, banks are not generally structured to do this on their own and to remain relevant and meet their customers’ changing requirements, they must look to partner and collaborate with more agile and cloud-based fintech providers. Most of the innovation in financial services is to be found in the fintech startup eco-system, and partnering would not only make the digitisation process much more straight forward, but would also allows the bank to offer more differentiation, very important in the face of competition from other banks and new market challengers.
Rather than seeing fintech firms as potential rivals, banks should instead collaborate to offer their customers a superior and differentiated service. By their very nature, fintech startups are more flexible and agile than banks and can bring a product to market significantly quicker in most cases. They are also more used to innovating on a day-to-day basis, and delivering the type of services demanded by customers in 2016.
A number of banks have already started this process. In the UK, Santander has partnered with peer-to-peer lender Funding Circle – the bank refers SMBs with rejected business loan applications to them, and in return Funding Circle directs any SMBs needing banking services to Santander. At Ormsby Street, we have recently launched CreditHQ, our small business credit checking SaaS in Italy and Germany, as a result of a partnership with one of Europe’s biggest banks.
Such moves are indicative of a general acknowledgement that it makes little sense for a bank to build systems and software from scratch when fintechs have already done a lot of the hard work for them. The challenge comes when they want to assess and integrate multiple partners.
[easy-tweet tweet=”Rather than seeing #fintech firms as potential rivals, banks should instead collaborate” hashtags=”Banking”]
As banks explore numerous options, including collaboration and acquisition, one thing is clear, that in the past few years they have recognised the need for change. The next step is to embrace the disruptors who’ve brought innovation to the sector, and find the right partnership model in which to do so.