The new generation of digital service providers that are experts in innovating emerging platforms and harnessing the consumer relationship and experience are spearheading disruption and evolution for the banking industry landscape, though they are not yet reshaping it.
These new players, which include non-banking fintechs and smaller, more agile banks and neo-players, are reinventing the rules and forcing banks to rethink their platforms, traditional modes of customer engagement, and their business models. There are also larger forces in play with big tech. In the discussion paper, How Banks Can Prosper in the Era of Open Banking, Falk Rieker, Global VP, Banking, SAP said, “The ‘Uberisation’ of banking is coming and, with it, platform-based business models that will see banks increasingly providing services beyond banking.”
Fintechs—businesses that provide financial services by making use of technology—were the subject of the World Economic Forum’s recent report, “Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services,” the culmination of three years of work into the banking landscape and the role of fintechs. Co-author of the report, Deloitte’s Rob Galaski said, “Fintechs have changed the pace of innovation and reshaped customer expectations across the financial services ecosystem. They have laid the foundation for future disruption in the industry and been successful in changing the basis of competition. This, together with the increasing pace of technology, means that incumbents have the potential to improve rapidly—but also face rapid disruption ahead.”
It must not be forgotten how important it is to ensure organisations realise the partnership opportunities available when extending the reach to ecosystem partners such as fintechs.
Rob Hetherington, global head of banking at SAP, shared his views on how fintechs pose a great opportunity for the Banking sector. “Some banks compete, some ignore, but we believe the best way is to partner with them. Banks needs faster go-to-market, speed, innovation, better CX; on the other side, fintechs are very agile and customer-centric but lack customer base—both sides want something from each other.”
Though fintechs are making a big splash, they have yet to reshape the competitive landscape. However, working with the larger organisations will create opportunities for them in terms of breadth and impact on the industry. The market scale and broad customer bases of banks have thus far ensured they have maintained their competitive advantage. For example, robo-advice fintechs like Betterment, Wealthfront, and Robo-Advice in Australia have driven innovation and have shown significant growth in this field. Now banks have created their own robo-advice services that are dwarfing fintechs. “The ability to be a fast follower has proven more important than being first for large financial institutions,” said Galaski.
So the question arises: What are successful organisations doing well in the age of digitization of banking?
Mayank Mishra, global head of digital channel services, treasury, and trade solutions at Citi, said his company has been co-innovating with fintechs. Citi’s agile methodology is based on real-time business that involves partnerships, mobile applications, and other innovations. “At Citi, US$52 trillion in transactions go through our channels and digital solutions across 96 countries every year, and we knew we needed to do something different for agility,” said Mishra. “We also realised the world is changing. People expect faster results and new concepts. We understood these changes and started bringing in the right culture, technology, and people. The catalyst to real-time banking is APIs.”
Given these challenges and opportunities, an interesting case study for big banks planning for a competitive future is Commerzbank, one of the largest banks in Germany, which recently launched a fintech incubator, the first of its kind in continental Europe. The incubator offers capital to fintech startups and access to Commerzbank customers (private and corporate) to venture capital, banking expertise, and IT infrastructure.
Along these lines of innovative and collaborative thinking, Commerzbank recently implemented an in-memory computing platform to help accelerate its closing processes and ensure regulatory compliance. Commerzbank has digitised all its lines of business, including investment, commercial, and retail banking, and at the same time is able to close its books much faster.
The open banking era is upon us, and as seen in the public domain, Macquarie is a first mover in Australia. This evolution presents an opportunity for banks, mutuals, and credit unions of all sizes to innovate and to become truly customer-centric to retain and attract their target customer base.
Explore more on the “Uberization” of banking here.