January 14, 2019

Collaboration over Competition

The recent years have seen an evolution in the functioning of the banking sector. The growth of the FinTech industry seems to strengthen the notion that it will disrupt the banking sector.

However, since banks and FinTech companies both have their advantages, the truth is collaboration, not competition, will be the source of disruption. With a collaborative effort between banks and FinTech companies, new solutions can be developed to enhance the relationship between consumers and their finances.

While the ultimate objective is delivering better customer experience, how will the Bank-FinTech collaboration work? Banks can leverage their strengths of existing precedence, large customer base and influence in the regulatory framework. While banks are capable of developing innovation labs, FinTech companies are more flexible in terms of operations. Being more agile, they can cater to the customer’s needs quicker without having to make various infrastructural and operational changes and costs. Banks are already quite financially stable and can support FinTech companies, while FinTech companies can provide disruptive solutions to optimize finances.

There is an ocean of data available, but the importance does not lie in ownership of data, but in understanding this data to fulfill the needs of customers. Since FinTech companies have an open platform as opposed to the closed platform system of banks, they will be able to better leverage data in a competitive manner.

So how does a collaboration individually benefit banks and FinTech companies? For banks, there is a fresh wave of innovation, which reduces the time to market. It paves a path to a new set of customers at a low cost. They have access to cutting-edge technology which acts as a differentiator from fellow banking agencies. For FinTech companies, they have access to banks’ loyal customer base, reduced operational costs and familiarity with regulatory compliances.

With a collaboration that can potentially reap multiple benefits, why is the level of partnership not greater? The valuation and monetization of partnership pose a problem. It can also lead to potential cultural and ideation clashes. It can be a struggle for FinTech companies to negotiate the long procurement cycles of big banks. For banks, integrating new innovations to their existing large system can increase costs, lead to the misuse of data and privacy issues.

Moving forward, banks must develop a framework that complements the innovative aspect of FinTech companies and at the same time maintain their objective. When choosing an innovative model, it is important to weigh the risks against it and assess the pros and cons of FinTech engagement. Further, it is also important to supervise talent and architectural changes.
Since organizational structures can be quite complex, FinTech companies must be able to articulate problems and deliver credible banking solutions which will create a beneficial partnership. They must also be able to differentiate themselves from other players with a distinct and disruptive solution.

The basis for a Bank-FinTech collaboration is transparency and the beneficial aspects are not just for each other but also for the public. The future of the banking sector seems positive, with bank and FinTech players exchanging more dialogue over the potential next-gen approaches to enhance banking.

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