Are banks really competing with fintech companies for business?
THE MODERN digital economy has enabled an unprecedented level of innovation across many industries, to the point that businesses in many traditional sectors are facing technological disruptions.
One such industry is financial services, where traditional banks seem to be competing with fintech companies.
The accessibility, efficiency, and focus that fintech providers bring, have helped them chip away at a market that was once owned by financial institutions.
By deploying some of the latest technology such as artificial intelligence and mobile banking, fintech providers are not only meeting the current demands of increasingly discerning customers, but also quickly reacting to changing customer expectations by bringing new products or services to the market.
While some within the financial services industry see the emergence of fintech as a threat, others see the transformative effect of the technology as an opportunity — to enhance the operations and offerings of the traditional banks, to serve the customer better, and achieve better financial inclusion.
Complementing instead of competing
According to Shailesh Grover, Chief Digital and Innovation Officer at Malaysia’s Hong Leong Bank, partnering with fintechs allows banks to deliver better value to customers, and provide more than just the traditional products and services.
“If you look at banks, there are only about ten products – current account, savings account, mortgages, loans, and so forth. Those are the core offerings of any bank.
“But if you look at customers, their changing expectation, evolving behavior and need for instant gratification require banks to do a lot more,” Grover explained at the MyFintech Week 2019 held in Kuala Lumpur.
And one of the ways for banks to meet these customer demands is to partner with fintechs, he added.
Grover claimed that despite establishing labs and programs to spur innovation, the pace of development within banks is still slower than the nimble and agile fintech players.
“So, if we want to experiment, or try something new, its much easier, faster and cheaper to find the right partner to do so,” explained Grover.
A similar sentiment was also echoed by MoneyMatch CEO Adrian Yap, who claimed that fintechs further augment the products that banks are offering in a more modern and seamless way.
“Partnerships helps us move things in the back-end, while we focus our resources, expertise, and capabilities to taking ownership of front-end customers,” said Yap and added that this collaborative model would be mutually beneficial as well.
Figuring the right collaborative formula
While collaboration seems to be a win-win situation, it is also essential to establish the correct type of partnership to ensure the optimal outcome.
One one hand, open collaboration leaves either party to continue to pursue other partners, which may lead to competitive issues.
On the other, if a bank or financial institutions acquires a fintech technology outright, it could impede the continued improvement or innovation of that product.
And rightly, Yap feels that there has to be a delicate balance between the two models.
“The best way for the bank is probably to acquire a fintech company outright, sit back, and allow them to what they do best. If the banks really want change, it can be done,” he said.
However, such strategy starts from the top, and its already happening within the credit card space, where Visa and Mastercard are acquiring fintech payment and cross-border payment companies.
“It is not about the company alone, but the talents and culture of these companies that will bring transformative effect to the traditional banks,” said Yap.
In regards to the future, both Grover and Yap agreed that these two players (banks and fintechs) need each other to continue to thrive in the financial space and do not foresee one of them causing the demise of the other.
Grover said, “It is important to note that fintechs only do one function of the bank, and although they do it really well, there are still many other functions that only banks could improve.”
However, he believes that collaboration between the two will fill voids and gaps to deliver comprehensive services to customers and work toward addressing issues such as financial inclusion and sustainable economic growth.
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