The relationship between enterprise banking institutions and financial technology (FinTech) startups has never been harmonious. However, in an ever-shifting digital world and several years of market disruptions, the two entities are stronger working together. Yes, it remains a complicated relationship, but the partnership is necessary in order to transform the banking industry from an antiquated system to one that engages customers in a digital environment.
Advantages to partnership
“Banking is no longer somewhere you go, it’s something you do,” Australian futurist Brett King once said. Americans now do their banking on their mobile devices. In fact, the largest banks are seeing robust increase in mobile banking engagement, with Bank of America reporting that in the most recent fourth quarter the number of monthly customer interactions on mobile was twelve times greater than that of monthly customer interactions inside their branches, according to JP Nicols, managing director of FinTech Forge. Yet, nearly one-in-five financial institutions don’t even offer a mobile banking app.
Financial institutions are not leaders in innovating new products quickly. Internal systems in banks run on antiquated systems without agility, making it difficult to innovate. Yet, customers have shown they want their banks to provide the latest digital functionalities.
“Banks aren’t tech shops,” Nicols says, “even if they have their own development team.”
At the same time, when the FinTech revolution happened a decade ago, many believed the startups would put traditional banks out of business. That, of course, didn’t happen. Now, most FinTech entrepreneurs are now openly courting banks and credit unions as customers and partners. “It’s difficult to scale a startup from scratch, and financial institutions have real paying customers,” Nicols says. “Beyond that, they have troves of valuable data — they know how much their customers own, what they owe, what comes in, what goes out, where it goes, when it goes, etc. That kind of data is invaluable in creating, building and scaling new offerings.”
The banking industry needs to be more technologically innovative to support its customer base. FinTech has the bandwidth necessary for innovation and disruption. This technological transformation is dependent on the overall partnership around the strategy. Nicols recommends what he calls, “The Declaration of Innovation,” which ties the goals of the company into innovation.
“Once you understand how all of the tech fits together with your goals, it is easier to put together partnerships with the right companies,” Nicols explains.
To date most of the innovation has been on the surface — giving tablets to bankers, launching mobile apps or improving web capabilities, for example. This surface layer is important for staying in the game and closing the customer experience gap. But we are beginning to see other technologies developing, like application program interfaces, cloud services, artificial intelligence and blockchains. These technologies have the ability fundamentally change underlying business models in financial services.
“I don’t envision a future without banks,” Nicols says. But not all will survive without being digitally relevant, and that comes by burying animosity and partnering with FinTech.