No bank is an Island – Fintegration is the key Welcome to the era of Digital Banking
The buzz around fintech has gained substantial attention of traditional financial institutions, startups, venture capitalists and regulators. Banks and regulators are hard-pressed to revisit their operating model and policies respectively to create a conducive environment of collaboration and dynamism amidst the participants in the fintech ecosystem.
– FinTech in India, A Global Growth story by KPMG & NASSCOM
Financial Services and Technology: The world today is witnessing the phenomenal unprecedented occurrence between FinTech and Banks – Fintegration
Redefining FinTech Transformation – Fintegration
As the saying goes-“Every coin has two faces”, The FinTechs and the traditional banks have their respective merits and their own limitations. To build on their common business interests and to eliminate their weaknesses, collaborating logically, so that together they can explore potential needs of customers and deliver, is the ‘need of the hour’.
“Banks that do things well are our allies, but banks that do things badly are our competitors. We are in the same sector and we should move forward together.”
This statement by Alfonso Sainz de Baranda, from Ahorro.net, on how fintech startups should interact with the traditional financial institutions, clearly summarizes the ‘should be’ relations between the most traditional financial entities and fintech startups to have a strategic and streamlined partnership – Fintegration.
THEN & NOW : Why Collaborate?
THEN: 2010-15 Scenario
To better understand the rationale behind the collaboration of Fintech and traditional banks, referring to The Economist Intelligence Unit Survey 2015, also titled The Disruption of Banking, the survey reported the findings of more than 100 bankers and fintech executives across the globe. It stated the advantages and disadvantages of both sides and their impact on each other.
The following were the key findings:
While 33% of bankers predicted that in the next five years the era will be of ‘FinTech+Bank’ , 46% FinTech executives confirmed that banks will continue to dominate.
NOW: 2017 Scenario
Highlighting successful Fintegrations, ING Bank and Scalable Capital, it suggested that:
‘An alliance between traditional financial institutions, like Bank and FinTechs has become the need of the hour. The blend of their respective competitive advantages and disadvantages perfectly complements each other.’
Further, the report states that FinTech growth has been exponential since 2010. The end of Q3 2017 saw them grow by engulfing more than 7,500 deals and raising USD 109.8 billion.
Reinstating on the above point the report states that during the survey more than 55% FinTechs agreed that they would love the relationship as that will enhance-
- Visibility for them,
- Economies of Scale,
- Customer trust, and
- Distribution Infrastructure.
In addition, more than 75% of FinTechs confessed collaboration with traditional financial firms as their primary business objective. The banks, also attracted to the technology wizards, support the alliance.
The same is evident when Benoit Legrand, CEO, ING Ventures and Global Head FinTech (ING), said and I quote:
“ING should be freeing up time for its clients. For example, with our partnership with Kabbage, we can now offer loans to Small Businesses in less than 10 minutes. This is a great illustration of how a bank and a FinTech can effectively partner”
The perfect collaboration can be defined as the one which synergizes and reinforce their strengths and quash their weaknesses.
It creates a single entity which can deliver results that they individually cannot.
With the perfect combination of Bank’s
along with FinTech’s
we can build a strong collaborative partnership like never before.
Win-Win for All
With Fintegration, it’s a win-win for all, from banks and FinTech firms to individual and corporate customers. The key benefits can be summarized as:
a. Benefits to FinTech:
- They can scale their business and hence confirm a substantial ROI.
- Ramp up millions of customers with speed.
- They will receive investment capital to scale-up their business.
- Better the risk management.
- Widen their customer reach and penetration
b. Benefits to Banks:
- Will have innovative products in their basket of services to offer to customers.
- Will deliver products which will certainly give superior customer experience.
- Launch newer customer-centric products.
- Reduce the transactional costs.
- Enhanced efficiency.
- Elimination of intermediaries.
c. Benefits to Customers:
- High-levels of products, services, and solutions.
- Functionalities with high speeds.
- Reduced risk.
- Services and products in a secure ecosystem, and governed by authorities.
- Innovative products at their doorstep or directly into their hands or fingertips.
Fintegration across the Globe
The collaboration between FinTechs and banks are not the talk of future, rather it’s the reality of today. Both are getting into partnerships and product integrations, direct investments and venture debts, VCs and fund-of-fund investments. There are successful Fintegrations like:
Banco Bilbao Vizcaya Argentaria is a multinational Spanish bank and is the second largest in Spain. By the second half of 2016, BBVA launched its API market-place, which aims to offer other companies, startups, and developers to use eight of its APIs. Therefore, allowing integration of customer banking data with third party products and services.
FinTech startups can access the API products and use them for their business. For example, they can use Alipay, which will connect their business with the online payments giant in China. They can use PayStats to dive into BBVA cards purchase data and enhance their business intelligence.
The Citi group, in 2016 launched its global API developer which facilitates the collaboration with FinTechs and facilitates them to connect and build innovative client solutions. It is one of the most exhaustive platforms available at present for financial services and includes accounts management, P2P payments, Money Transfers, and much more.
OTKRITIE bank, the biggest private-owned bank in Russia, integrated with leading digital bank-Tochka and developed its API platform. The same was used to integrate FinTech startups like- Rocket Bank (Mobile bank for retail customers). Later Russian online payment company Qiwi said that it had bought the rights to banking apps RocketBank and Tochka from Otkritie, which was Russia’s largest privately held bank by assets before the central bank nationlised it in August 2017.
The American multinational investment bank ventured into the car-buying business by launching a digital platform for customers to buy a car and get financing or car-loan, using a computer or even Smartphone. The bank collaborated with the online car-buying site- TrueCar.
Circle’s Social Payment Services in the UK
Circle, a peer-to-peer payment fintech firm became the commercial banking partner with Barclays, the leading British multinational investment bank with operations across 40 countries. The partnership allows Circle to store pounds for its customers and simultaneously integrate any bank account in the UK to move money in and out using its app. This means customers in both UK and the US can transfer sterling pounds and dollars instantly without any fees, across the borders.
There are the banks that do not hesitate to toast with various startup FinTechs to enhance their quality and features, like the OCBC Bank Singapore. Born in 1932 with the consolidation of three banks, it is the second-largest bank in South East Asia by total assets. The bank’s FinTech unit runs “FinTech Accelerator Programme” under the title- The Open Vault, with the objective embrace co-innovation and allows innovative global FinTech firms to collaborate and create products and services which can redefine banking.
- OCBC Bank and SILENT EIGHT: The FinTech delivered a power tool to the bank to combat the money laundering issues. It digitally scans search engines, news sites, and internal and external databases to collate comprehensive dossier of the suspected individual within minutes.
- OCBC Bank and BlackSwan Technologies: The FinTech is world’s first enterprise AI operating system. It uses AI to analyze the suspected transactions, plots it on a network of associated transactions to scrutinize on possible connections with any other transaction or individual, and identifies them.
This is not the end of the list of toast organized by OCBC Bank. Along with Strands and 9Spokes (FinTech companies), they braved solutions for their SME customers to facilitate business management and better cash flow. The recipe simplified the process of managing working capital and financial performance, which in day-to-day operations often becomes difficult for SMEs. The customers can utilize the digital tools and dashboards to enhance their productivity and performance.
The list is endless and growing, and includes world’s leading banks like- JPMorgan Chase, Bank of America, Barclays, DBS, and much more.
Financial institutions that take the time to define their fintech strategy and align it to their business goals will be best positioned to help forge the future of financial services. The road to a successful collaboration between banks and fintech is promising but complicated, with regulators and authorities playing a critical role. But the wedding bells are certainly ringing, where all the stakeholders are sure to benefit, especially- THE CUSTOMER, who will receive lower prices, more innovative products and better services in a transformed banking world.