Over the last few years, we’ve seen a transition in the banking and finance industry from traditional banking offerings to an inter-connected web of banking and financial service providers, with technology at its core. As part of this evolution, many fintechs have emerged offering quick, easy and seamless banking services, raising the bar on customer service and resetting expectations.
A report by EY and HM Treasury entitled ‘UK FinTech On the Cutting Edge’, highlights the significance of the fintech sector as it generated £6.6 billion revenue in 2015 alone, attracted £524m in investment and employed around 61,000 people.
The emergence of fintechs has intensified competition within the banking and finance industry, and many traditional banks are struggling to keep up with the pace of change. If traditional banks are to stay relevant within this fast paced, technology-driven financial services industry, they must utilise fintechs and see them as collaborators not competitors. Traditional banking systems are no longer fit for purpose and outdated technology must be updated with a digital core banking technology in the cloud.
How can traditional banks keep up with fintechs and challengers?
Fintechs provide a route for traditional banks to strengthen their position within the banking and finance ecosystem. Banks need to open up to collaboration – not only with technology providers but also fintechs. This integration with other third-party providers will enable banks to place customer experience at its core.
‘Open Banking’ will assist banks in becoming fully collaborative, enabling them to offer a much more personalised service for their end users. Fostering a culture of collaboration will not only result in an effective prevention to future cases of IT outages and disruption – for example seen in banks such as, Lloyds TSB and Barclays - but it will also lead to an expansion in product and service offerings.
Opening up APIs to trusted third parties will equip banks with the technology needed to transform their digital operations, meaning banks can access more customer data and, in turn, result in the quick and efficient delivery of customer products via 2-speed IT.
How can big banks benefit from a culture of collaboration?
‘Open Banking’ is re-shaping the financial services market. We are beginning to see collaborations, not just among banks and fintechs, but also other professional service providers – for example with accountants and lawyers. Due to the interconnect via APIs, service providers will be able to enhance their offerings and increase their range of services.
The opening up of data via ‘Open Banking’ will gain access to ‘outlier’ service providers enabling banks to offer personalised products and services at speed – expanding their portfolios to align with new expectations. By banks connecting with other fintechs, they will be able to take a customer-centric approach, evaluating their strengths and identifying where they need specialists to help expand the value of their offerings.
Banks will be able to bring end-to-end solutions to market with ease, incorporating a variety of products and services such as digital lending, blockchain, video chat, mobile wallets, cognitive services, AI, machine learning and data analytics. ‘Open Banking’ will also mean that financial institutions will be able to reduce costs through the streamlining and automating processes.
For traditional banks to remain relevant in the digital age they must ditch the idea that fintechs are the enemy and work with them to provision both for regulatory compliance such as PSD2 and PSD3 regulations, and to help them to stay competitive by providing a service which is fast, reliable, and catered to customer needs.