By Angus Panton, Director of Banking and Financial Services, Expleo
Disruptive technology often comes from the perfect pairing of deep experience and new ideas, creating something greater than the sum of its parts. Think of when telecoms pivoted to data, the media adopted streaming or bricks and mortar retailers embraced online. Financial services are no different – the opportunity for innovation through partnerships between FinTech start-ups and traditional banks is set to shape the future of the industry. And, whether it is imagining a new way to make payments possible or transforming customer experience with powerful AI, there’s a lot to be said for the power of the partnership.
Start-ups, not up-starts
FinTech start-ups have made significant in-roads over the last ten years into what was often seen as a narrow sector. From challenger banks to peer-to-peer payment apps, there is a FinTech start-up for everything and anything financial and while some fail hard and fast, others break through with technology that has the potential to change the way the global banking system works. And, as FinTech matures its looking to the establishment for ways to strengthen both its reach and impact.
Most big banks offer customers everything from credit cards to mortgages, business banking to ISAs. They’ve developing end-to-end financial products and services, backed by a strong reputation built over many years in the marketplace. FinTech on the other hand tends to be driven by specialisation, taking a problem or pain point and devising a technology-driven solution for a digital native customer. FinTech start ups are not weighed down by legacy systems, they are digital first organisations, complete with slick customer journeys, equally smart marketing and a clearly defined customer and market niche in mind.
What the up-start has in abundance the old guard can lack – and vice versa, but by marrying strengths to create a symbiotic partnership, the benefits are truly exciting.
What opportunities await?
Many FinTech start-ups focus on a single product and do so really well – but may lack the internal infrastructure and security protocols to meet regulatory requirements. Equally, they often start from scratch with the customer to build brand equity and reputation. This is where partnering with a traditional institution can really work – after all, scaling together can be easier than scaling alone.
For FinTechs with existing brand equity where the product IS their business, full integration might not be the right fit, but a partnership built around an affiliate approach can still work well.
So although FinTechs and traditional banks are often framed as nothing more than competitors, there is an opportunity for a more dynamic, symbiotic relationship – that capitalises on their relative strengths. Combine this with legislative pressure on banks to increase the pace of their customer journey and digital transformation projects and you’ve got the perfect environment for disruptive technology to flourish.
For example a FinTech can provide a bank with a ready-made digital product, helping the bank bypass years of costly development. In turn, the bank might shoulder regulation, compliance and financial transactions – helping the FinTech get its product to market with fewer roadblocks. By doing so everyone wins – including the customer!
The brave new world (and how to tame it)
Managing change with structure and agility
Start-ups often enter into partnerships without way markers or precedent – making it hard to predict what should be built into contracts and the cultures they’re bringing together. Building a phase into the plan to allow for full discovery and due diligence might sound obvious but is often overlooked. By planning ahead, FinTechs can be ready for the business change required to execute the partnership effectively and with as much foresight as possible.
By exploring mutually beneficial target operating models and carrying out thorough process mapping it helps prospective partners to create an agreed blueprint or ‘partnership vision’, ensuring that it this is well-aligned with both party’s real-world operational capabilities.
Avoiding the culture clash
FinTech can sometimes struggle to adapt to traditional banking’s corporate structure and operating model, and this can be made more complex by the weight of legacy IT systems and multi-layered bureaucracy.
Time spent understanding culture and ways of working is essential to get both businesses to a place where they can align roadmaps, streamline processes, engage their people, understand their stakeholders and produce that all important proof of concept.
The tricky trio – regulation, compliance, and cybersecurity
Although the path for new entrants to financial services has been smoothed in recent times, the Prudential Regulation Authority (PRA), the body that issues banking licences in the UK, still expects applicants to have an in-depth knowledge of how banking works. This means FinTechs need to demonstrate due diligence, provide strong evidence that their tech is fit for purpose and meets customer needs.
FinTechs that take time to build a highly skilled team, with the right level of expertise across all disciplines, including cybersecurity, will find this highly advantageous when it comes to establishing a culture of compliance and a strong reputation in the industry. Equally, working with a partner that is willing to support and share best practice will go a long way towards a FinTech’s ability to confidently meet regulatory requirements.
A seat at the table
Harnessing disruptive tech is at the heart of many a traditional bank’s business strategy, which means the door is wide open for FinTechs to establish new, symbiotic partnerships. To build confidence and get that seat at the table, FinTechs will need to showcase their understanding of how to develop technology at pace, demonstrate their inherent understanding of the digital consumer and customer journey, while acknowledging the benefits their traditional bank partner brings in stakeholder management, compliance, change management and quality.
We all know business integration isn’t easy – but get it right and the rewards are worth it. In financial services, it’s a case of ‘if, not when’ we’ll see an industry-shaping product or service born out of a partnership between FinTech and a traditional bank dominate the market.