By Jackie Toole, Vice President, Financial Services at NTT DATA Services
The banking industry is rife with uncertainty. There are many geopolitical factors impacting the market, with economies struggling to grow worldwide and new regulations to adhere to. Moreover, fintechs and digital challengers continue to enter the market with new agile and digital solutions, so there is a new heightened demand for customer-centricity too.
To achieve the flexibility required to keep pace with the industry, banks are increasingly looking towards technology to support them as they adapt to market changes and evolving consumer demands. However, banking organisations are often at a loss with where to start with their digital transformation, while managing the transformation comes with its own set of challenges.
Opposites attract
However, the solution to banks’ problems lies closer to their challengers than banks may think. In order to accelerate and enhance their transformation strategies, banks need to look at how they can work collaboratively with fintechs, rather than working to compete against them.
The adage, opposites attract, couldn’t be truer for this scenario, as both parties bring different capabilities which can work together effectively. On the one side, we have traditional, monolithic, legacy banking institutions, slower to innovate but with substantial financial resources and extensive customer bases. Meanwhile, on the opposite side, we have the fintechs and digital-native challengers, who are agile and innovative but lack the funding or customer base to really generate adoption for their solutions and platforms.
Collaborative solutions can take many forms – for example, the development of digital payment platforms that combine the security of banks with the user-friendly interfaces of fintechs. Other potential collaborations include partnering on robo-advisory services that leverage the investment expertise of banks and the AI capabilities of fintechs, or teaming up on digital lending platforms that provide innovative credit options within a regulator-friendly framework. By pooling their complementary strengths in this way, banks and fintechs can deliver cutting-edge banking solutions tailored to evolving consumer demands.
A mutually beneficial partnership
In the current finance landscape, traditional banking organizations stand to gain tremendously by embracing fintech businesses. By bringing their scalability and agility into play, fintech firms provide a way for banks to modernize their operations and stay ahead in the digitized world, improving customer service, optimising operational efficiency, and broadening the scope of their financial products.
The agility that fintechs can provide is derived from their freedom to develop and roll out digital solutions, unencumbered by legacy infrastructures that often hold back conventional banks. This agility enables fintech firms to swiftly react to shifts in market trends, consumer demands, and regulatory changes. By leveraging this agility, established banking institutions can significantly expedite their innovation efforts to address the evolving challenges presented by the changing banking landscape.
However, fintechs can also benefit from such collaborations, making it a win-win scenario for both parties. Key benefits that can be leveraged include both the global reach of established banking providers and the robust infrastructure that financial institutions can provide.
Forming alliances with multinational banks gives fintechs a pathway to globally scale their services and reach new markets at the same time. Moreover, the experience and expertise of banks can help fintechs navigate regulations, as they have vast experience in adhering to complex regulatory systems, pivotal for fintechs looking to maintain compliance and foster trust across new markets.
Fintechs can also benefit from the trust and credibility associated with established financial institutions. Traditional banks have built up trust among consumers over many years, which is important considering that trust and security are critical in the banking industry. Collaborations with banks allow fintech startups to tap into the trust that customers have in traditional banks, establishing a reliable foundation for the adoption of their innovative solutions.
Delivering innovation better and together
The banking landscape is changing, and there are plenty of real-world examples of how collaboration is starting to be enabled within the finance ecosystem. From industry standards organisations such as SWIFT, to fintech incubators and accelerators such as London’s Fintech Innovation Labs, to government initiatives such as India’s Digital India and Unified Payments Interface (UPI) – all these entities encourage innovation and promote a more collaborative ecosystem. In the case of India’s UPI, it has enabled innovative digital payment solutions, allowing users to instantly transfer funds between bank accounts on a mobile platform. This national payments system, developed through collaboration between the National Payments Corporation of India and leading banks, exemplifies the agility of fintech-bank partnerships in responding to shifting consumer demands and market trends.
As a result of these organisations and initiatives, banks and fintechs are starting to realise the benefits of a collaborative partnership together. By joining forces and channelling resources and capabilities to support each other, banks and fintechs are beginning to understand that they can propel the industry forwards, together. The desire to innovate and create better and more accessible solutions is the driver for both fintechs and banks, and it can help the two parties leverage their respective strengths to unite under a common goal.
This cooperation will form the foundation for the future of modern banking and is essential for the evolution of the financial industry—it merges the robustness of long-standing financial institutions with the dynamism of tech-driven fintechs, thereby promoting innovations while ensuring regulatory compliance and maintaining system integrity amidst the shift towards a digital economy.
Separately, both banks and fintechs are able to meet consumer needs but without really delivering the best or the most optimal customer experience. However, together, they can work to build new, digitally-enabled banking experiences for consumers in the future, and in doing so, they will usher in a new era of modern banking.
