Banks have large customer bases and developed relationships with their customers, yet find it hard to deliver new, innovative products and services quickly. On the other hand, financial technology (fintech) startups are very agile and focus largely on customer-centric processes, yet lack the customer base and relationships that banks have.
By working together, these two types of organizations can capitalize on their strengths without losing their edge. Banks can rapidly deliver new products and services to their customers, while startups have the market reach to grow.
However, making that happen requires consideration of the potential culture clash. Banks need to find a way to ramp up and integrate fintech firms – and their technologies – in such a manner that they are not suffocated. If fintechs are to grow, many of the characteristics that banks impose on their own teams must be relaxed.
The same point is true in software development. There must be a collaborative approach to development that combines the speed advantage of the fintech with the industry-strength solution that banks are good at. This will require the bank to concede that development should be focused on the customer in order to support the migration to a digital-first environment, and the fintech must see the end game of integration into a wider set of processes and services.
Likewise, both firms should be very aware of who and what their partner is to ensure a good fit between the two businesses. Banks should be looking for fintechs that will complement their development force and product offering while being conscious of the need for the fintech to grow and gain revenue. If the bank is really engaging in a digital-first transformation, its fintech partners should be made aware of the program for change that their larger partner is engaging in and should be seen as a potential resource to facilitate that change.
There are no shortages of startups developing tools and services that traditional banks can support. Working out where and how disruption can be seeded most effectively within their operations should be the first step for banks. That requires good timing in order to sustain a project all the way through to fruition, with results that can be measured and seen.
If a bank wants to be a front-runner in the market, it will also need to determine when an investment should take place, in terms of the maturity of the technology. There are numerous industry consortia that demonstrate market-wide interest in certain technologies, such as messaging and distributed ledgers.
Working with peers in the market – both banking and fintech – can help develop standards that all parties can benefit from, ensuring that whether or not a firm takes a leading position, the industry as a whole takes a step forward.
In the next of this series of blogs, we’ll take a look at corporate banking and how the trends in consumer banking are prefacing significant change.
With the banking industry in a state of flux, The Banker, in collaboration with SAP, has developed a timely video series titled “Digital Trends Driving Bank Innovation,” featuring interviews with senior leaders from RBS, Nordea, Citi, and SAP, which looks at the key drivers in the industry right now, including innovation, cybercrime, fintechs, blockchain, and digital banking.
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