By Ian Bradbury, Chief Technology Officer – Financial Services Business at Fujitsu UK & Ireland

Last year, the McKinsey annual banking review laid out in black and white what many have been talking about before: banks in the major developed markets must be wary of the finance ambitions of tech behemoths.

Ian Bradbury, Fujitsu

Although for the past years the financial services industry has excelled at offering customers new digital services for engagement and interaction, as e-commerce giants eye up the sector, banks must think of new ways to adapt and compete.

If traditional banks continue to increase their efforts to explore the potential of robotics and automation, cloud and apps – to name a few – they could secure an extra £264bn of profit over the next three to five years, according to the same report.

As digital continues to reshape the business world, we have already seen tech companies enter new markets: Amazon, for example, has shaken up the retail market with its acquisition of Whole Foods, which is set to further merge the tech and retail industries.

In the coming years, this trend is likely to extend to the financial services sector.

Why are tech companies successfully entering other markets?

Most tech companies today are primarily platform-based digital disruptors. The nature of their business model makes them agile data collectors who amalgamate large amounts of information – and increasingly look for physical networks, locations and products to turn the data they hold into profit.

This means that collaborations between traditional companies and disruptors in various industries – including financial services – can lead to efficient, long-lasting partnerships that are equally profitable for the firms involved and their customers.

The tables turned when banks found a way to join forces with fintechs. For instance, a year ago seven European banks – Deutsche Bank, HSBC, Natixis, KBC, Rabobank, Société Générale and UniCredit –agreed to develop a blockchain-based shared platform for domestic and international commerce for SMEs.This collaboration project proved that cross-sector collaboration benefits all.

Another great example of a partnership between banks and fintechs came in December last year, when a group of banks and fintech startups backed a pilot project with Malawian tea farmers. Here they created a system that used blockchain technology to try to create more sustainable supply chains.

With this in mind, banks must address their internal challenges in order to fully capitalise on such opportunities.

An evolving business

The challenges banks face today is four-fold.

Firstly, banks must understand what they are not, and they are not platforms where people go to for gratification like they would in the case of online shopping platforms or social media. Customers go there to bank. Ultimately banks may become platforms – and many banks are considering or even aspiring to this – but the journey will be long and difficult.  That’s why they have to progress on two fronts simultaneously: partner with other companies to help evolve their external offering and digitise internally to offer a more user-friendly experience.

This is tightly linked to the second point: bank’s existing value is locked up inside ageing IT systems.

This prevents them from supporting new ways of working, being able to respond quickly to changes in the marketplace or even create new solutions.

By digitising their business, banks will be well positioned to combat the threat from the likes of Amazon, Alibaba and Tencent, who have already made steps to prove themselves as chief digital threats to the banking industry.

Thirdly, banks’ way of working and systems are less efficient when compared to businesses built from the ground up to be digital – like the big platform players.

OurNew Pace of Change report found the majority of consumers believe interactions via traditional channels such branches, telephone calls, and letters will decline in the next five years and more automated interactions such as online banking, mobile applications or self-service kiosks and ATMs are predicted to grow.

Lastly, regulators want competition in the marketplace – and are willing to allow new entrants in to do this.

It’s imperative then that banks think of ways they can collaborate with the new entrants, combining their experience and proven track record with fresh ideas and novel approaches to banking.

Final thoughts

The sector has the opportunity now to make the best out of collaboration– be it bank-bank or banks-fintechs – to reassure consumers that digital services are here to make their experience seamless and secure.

With the launch of initiatives such as Open Banking, the importance of collaboration and knowledge sharing will only grow. And we look forward to seeing the historically traditionalist banking sector in the UK open up to introduce new digital services.