Gary is a successful journalist and content creator, specialising in the business and technology market mainly around enterprise IT and the CIO agenda. With 30 years experience, he has worked with titles such as Computer Weekly, Computing, Information Week and PublicTechnology.Net, working on both sides of the Atlantic – UK, New York, San Francisco. During his 30 years working with the IT industry, he has delved into various aspects of digital disruption, digital innovation, and IT progression, particularly looking at how these changes are affecting other industries.
‘Fintech Start-Ups Put Banks Under Pressure’ – FT.
‘Fintech vs. Banks – Closing the Gap’ – IDC.
‘Fintech Vs Banks: The Battle Heats Up’ – Europe Business Review.
June 2017 – Given these and many other headlines, there’s a clear perception out there that the relationship between the fast-emerging world of financial technology innovation, Fintech, and the older ‘Establishment’ of global banking is one marked by conflict.
It’s not hard to see why. This is a classic David vs Goliath tale, after all, where the scrappy incumbent takes on, and soon defeats, the lumbering, outdated opposition, there is bound to be a comparison.
It’s also classic Clayton Christensen disruptive innovation, “A technologically simple innovation in the form of a product, service, or business model that takes root in a tier of the market that is unattractive to the established leaders in an industry”. To use one of the business thinker’s best analogies, Fintech must be the financial services version of Uber, targeting mainstream markets with a cheaper service to attract interest.
By this logic, Fintech will destroy old-style banking the same way streaming radically upended the status quo in music and video consumption. Is this really game over?
Absolutely, there’s sense in this analysis. Think about what Fintech offers; agility in execution, no IT baggage, a commitment to use the latest tech, a passion to experiment. That’s a powerful constellation of forces.
Now look over at classical banking. Tightly regulated, addicted to process, often lugging ancient tech around: siloed systems. That seems like the description of a species of animal about to go the way of the dinosaur. But there are a lot of problems with this. It’s actually an overly simplistic way of understanding the evolution of how the world wants to save, spend and route its money.
The first is that constant use of the word ‘versus’. There’s an in-built assumption that this is a story about conflict. But if that’s the case, why is Tier One ‘dinosaur’ Deutsche Bank talking about Fintech players as ‘potential partners, not threats’?
In fact, Deutsche Bank has gone on record about working with next generation financial technology firms as being a formal part of its strategy, which is all about allowing third parties to connect to its systems so as to provide customers with innovative new services.
The firm is also about to make one of its extremely rare investments in a startup, and unsurprisingly, it’s a Fintech one.
Antagonism doesn’t seem to be the approach, either, of the multinational banking company BBVA, which connected with more than 1,200 Fintech start-ups around the world via its Open Talent contest, a scheme to actually help the candidates reach potential customers and clients.
“One of our prospects have actually set up a specific team to review the Fintech ecosystem to evaluate who they can actively partner with” says Jain. It turns out there are actually increasing examples of banks not looking to drive off the competition, but looking to partner and open dialogues with Fintech. Suggesting that a better word to put between ‘bank’ and this new wave of tech-savvy service provider might be ‘and’, not ‘versus’, perhaps?
There’s actually some sound strategy and policy behind a more cooperative relationship between the two sides. Let’s go back to those sets of defining characteristics to see why. So Fintechs are agile, energised and nimble. However they are also small, fragile, and only ever really about solving one problem (or sub-set of a problem). They gravitate to useful markets like crowdfunding platform creation, or online lending, or consumer payments – which are great, and useful. But they aren’t forex or mortgages.
And those traditional banks? There’s a benefit to being so regulated – consumers absolutely trust them with their data, as a result. I’d share my passport details with these guys, but I am just not going to do that with some cute new app. SunTec is able to help connect the two.
Banks also have reach, scale, and are able to actually invest more in their tech. It’s just not economically viable to try and bootstrap a global lending platform or hedge fund network; this class of powerful financial instrument, with all its security and quality of service, rightly belongs at this end of the market.
A better, more nuanced, way of understanding the interconnectedness of established player and newcomer than conflict and battle to the death, then, is one of what is sometimes dubbed ‘co-opetition’.
What you have there is the sense that sometimes you collaborate, sometimes you compete – but both parties are looking to grow the market for mutual benefit, not seek to squash the other.
Fintech firms, keying off deep familiarity in terms of age and culture with their target digital consumers, will be highly successful in low-scale personal finance applications. Others will leverage off knowledge gained in the corporate world to build innovative digital B2B solutions, solving problems the big banks may have lost focus on.
At the same time, thanks to their powerful branding, presence, bullet-proof systems for handling personal and business data, financial service leaders will continue to dominate the market – and likely act as trusted portals for a next generation of digital finance innovation.
Such innovation will be driven bottom-up by Fintechs – but not in each and every case. As regulations around open data, APIs, PSD2 and other market context setters roll out, it’s not going to be Fintechs sweeping in replacing banks, but a new ecosystem will emerge, where some of the former will act as pioneers to test markets for the banks, perhaps as Joint Ventures, partners, on some sort of profit share or other arrangements.
Sometimes, banks will in there themselves, I have no doubt, with Chief Data Officers and tech-friendly line of business managers wanting to find new centres of profit, too. Jain adds, “One of the more innovative banks in Asia, has launched a board with members coming from other forward-thinking banks in the region as well as several Fintech influencers. This board will figure out what is the best way to work together to create the ultimate digitalized experience for the customers.”
SunTec is seeing this up close, as one of our latest client wins is an innovative Asian Tier One bank that’s set up a board to specifically look for Fintech startups to work with, based on a cooperative approach.
SunTec is also offering practical help in making such a move a reality, with the technique of aiding banking IT transformation with a non-intrusive “intelligent business layer” as a middle layer.
Putting all this together, it’s clear that an open banking future is in sight, but it will be more about widening the market, not a direct rip and replace of one set of financial service players with another.
By replacing ‘versus’ with an ‘and’, then we can start building the kind of helpful relationships that mean both sizes of company benefit, not harm, the other.