The importance of harnessing FinTech thinking

The importance of harnessing FinTech thinking

Jason Bell

Regional Sales Director, FS&I at ServiceNow

Views 854

The importance of harnessing FinTech thinking

22.11.2018 10:00 am

FS&I: The new order

The financial services ecosystem is transforming. While no organisation would deny the pressing need for digital transformation, I'm referring here to another kind of change; the very structure of the financial services sector itself.

A new order is emerging. Fresh vigour is in evidence across the sector. It's a time of considerable opportunity for those who embrace the need for fundamental change. It could also be a time of diminishing opportunities for those who don't.

Organisations are beginning to cast off previous values and perceptions about corporate behaviours and adopt flexible thinking which is open to ideas and influences once considered to be outside the 'establishment'. Start-ups, not long ago considered 'upstarts' by traditional institutions, are here to stay.

A shift from competition to collaboration, from both incumbents and 'disruptors', is bringing a faster pace to digital transformation in a trend which will benefit not just the participants from both quarters, but also the customer. It's logical to assume that as the customer benefits, so does the business.

Collaboration with FinTechs: Quick win and lasting value

Observing the collaboration trend, PwC's Global FinTech Report 2017 suggests that  "82% [of financial institutions around the world] expect to increase partnerships with FinTech companies over the next three to five years". By partnering with innovators, incumbents will be able to "outsource part of their R&D and bring solutions to market quickly".

While incumbents need the kind of fresh thinking, skill-sets and innovative products and services that FinTechs offer, there is a quid pro quo; FinTechs need big numbers to survive. They need customers in volume, not just niche pockets of enthusiastic early adopters. Incumbents offer customers in their hundreds of thousands, and in their millions.

Consequently, incumbents hold a strong hand. They're in a position of being able to leverage their superior scale and resource to assume a level of control within any partnership. Barclays has adopted such an approach with its FinTech Accelerator programme, a partnership with Techstars. Start-ups are invited to compete for places on a 13-week programme in London, New York and Tel Aviv. The programme provides access to skills, resources, knowledge and investment, as well as introductions to potential customers within the Barclays ecosystem.

Approaches of this nature are a strategic way to build long-term capabilities in the FinTech space. More importantly, they offer incumbents quick and low-cost access to valuable skill-sets to help address their own customers’ rapidly evolving expectations.

Collaboration beyond FinTechs: Innovative thinking for long term gains

Organisations beyond the financial sector are also realising the value of collaboration in new ways, with new partners, to exploit new business opportunities. Particularly active in this regard are e-retailers and social media platforms. They offer new channel opportunities for financial services organisations through their large customer databases, brand recognition and native understanding of digital business models.

Big Tech and professional services firms are also entering the market. For example, Accenture has created its own FinTech innovation lab with hubs in London, New York and Hong Kong.

The ground rules for successful collaboration

The main challenges are for both parties to align in four principal areas

  • Brand / Reputation / Risk
    For FinTechs, association with a large financial institution brings immeasurable credibility, far quicker than it would take to build without such association. From the perspective of protecting the brand reputation, incumbents should seek reassurance in areas such as the FinTech's resource, scale and expertise to deliver on the deal. They should also undertake comprehensive risk assessments to ensure regulatory compliance.
  • Culture clash elimination
    Corporate financial institutions are almost by definition conservative, process-oriented and wary of change. FinTechs are disruptive. Change is their raison d'etre. Both parties need to take the time to educate the other about their business, their market and their customers.
  • Market gaps / Customer needs / Innovation
    FinTechs thrive on identifying under-served market segments and fulfilling very specific customer needs. Ironically the incumbent financial institution was doing the under-serving. The larger the service gap and the larger the under-served customer base, the greater the commercial opportunity. Incumbents therefore need to make an honest appraisal of their weaknesses, and which of them would present the gateway to the greatest opportunity with a trusted and innovative partner on side.
  • Technology / Transition / Integration
    For traditional organisations, legacy systems restrain innovation and agility.  As digital natives, FinTechs have no such shackles on their agility and growth potential. Their services are built on flexible, scalable platforms driving fast, efficient delivery. FinTechs think digital, which is precisely why banks are looking to partner with them. But for the partnership to work, there needs to be a meeting of minds on how technologies will be deployed, integrated, developed, shared and funded.

Customers are universally expecting more from their banks and other financial services providers as awareness of FinTech offerings grows and the services designed for the modern lifestyle gain greater adoption and  acceptance. Incumbent organisations need to refocus themselves to become more customer-centric than ever if they are to stay competitive in an increasingly FinTech-driven landscape.

Explore the negatives

As a final word; whilst collaboration with innovative partners seems an entirely appropriate and potentially winning strategy in a digital age, the practice comes with caveats. Cyber security is a concern for banks entering into such partnerships, particularly as it pertains to the sharing of sensitive information. 

Some institutions are wary that using technology supplied by third parties could expose them to legal, financial and reputational risk. Other considerations relate to culture differences between FinTechs and incumbents, and issues around intellectual property rights.

Latest blogs

David Orme IDEX Biometrics ASA

From card issuers to retailers: how biometric smart cards benefit the entire payments ecosystem

With the roll-out of biometric fingerprint authentication smart cards, consumers will soon be able to make payments feeling more confident about the heightened security their new cards will offer. However, it’s not just consumers that stand to Read more »

Samuel Rosenberg, Varun Ratta, Chris McMillan, and Sarah Roesener Oliver Wyman

Navigating The Revenue Tech Universe

Boards Expect Near-Term Disruption From Emerging Technologies “Revenue Tech” refers to the plethora of technology application providers of analytics, insights, and decision-making support software aimed at fueling top-line and margin growth. At its Read more »

David Villaseca Oracle

Are Banks really responsible in a digital world? Challenges on United Nations

This week, we held a discussion on Responsible Banking on the 25th United Nations Climate Change Conference (COP25). It connected different experts from Bank of Spain, Santander, etc, with the coordination of CEU. Green and Responsible Banking Read more »

Steve Morgan Pegasystems

What Trends Will Shake Up the Banking Tech Sector in 2020?

In the past year, we’ve seen technology play a huge part in shaping the banking industry landscape, from emerging fintechs to new solutions facilitated by Open Banking to the latest AI tools. With such progression happening throughout the sector, we Read more »

Bas Lemmens Pivotal Software Inc

Agile holds the key to competition and growth in financial services

The pace of change in the financial services sector is such that traditional business models are no longer viable, and firms that have stood the test of time must adapt in order to survive. A recent Gartner report found that by 2030, 80% of heritage Read more »

Related Blogs

Lina Andolf-Orup Fingerprints

Finger on the pulse! The Countdown to 2020 has Begun

With 2020 in sight, now is the perfect time to pause and reflect on the past three months and see how the world of biometrics has evolved since our last update. With everything from high profile announcements to some news you may not have heard, Q3 Read more »

Ian Pollard Signavio

The continuing need for high street banks to review their internal processes

The Competition and Market Authority (CMA) has recently instructed two British high-street banks to appoint an independent body to audit their Payment Protection Insurance (PPI), after sending out reminders containing incorrect information to Read more »

David Orme IDEX Biometrics ASA

Cashless confusion: consumers are keeping their cards close to their chest

Do you remember coins? When was the last time you actually carried around a pocketful of pennies to pay for something? Given the rapid growth of contactless transactions, mobile payment apps and online shopping, it was probably quite a while ago now Read more »

Eddie Davis FINSYNC

Alternative Lending and Fintechs Accelerate Small Business Growth in 2019

The remarkable and rapid technological wave that has given rise to fintech and one of its biggest segments, online lending platforms, is showing no signs of slowing. Fintech-powered financing is making business lending more affordable, more Read more »

Prajit Nanu InstaReM

The adoption of fintech and its future

The evolving fintech ecosystem is a financial revolution and has become part of the everyday norm much quicker than many ecosystem developments of the past. Thanks to fintech, we can now send money to friends and family using digital cross-border Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel