Sonny Singh, senior vice president and general manager of Oracle Financial Services
Finance and technology media are rich with articles cautioning banks about digital disruption in their industry. But disruptive innovations in fintech are both a threat to traditional banks and a great opportunity.
Concerns around the potential of emerging tech companies to displace banks are to be taken seriously, having seen how agile, innovative businesses have transformed other industries. However, banks should consider not only a sprint to keep pace with the innovation of fintech challengers but also a marathon towards creating a whole new banking industry.If banks go about this the right way, they may be able to come out ahead.
A growing number of banking initiatives are encouraging innovation and competition in the interests of consumers. This is a good sign that the industry is ready to embrace change. The UK FCA’s second sandbox initiative, a ‘safe space’ for companies to experiment with novel products, services and business models in a live environment, is providing a climate of regulatory support and access to financing that is key for fintech innovation to thrive. To outpace competitors, banks need to be taking advantage of this kind of initiative.
Tech companies such as TransferWise, Revolut and even Facebook are challenging banks’ traditional offerings by presenting consumers with banking services in areas where banks have been resistant to change. To their advantage, these companies developed offerings specifically for online and mobile, giving them greater flexibility and scalability to respond to changing technology and consumer trends.
This threat of disruption and loss of relevance is propelling many traditional banks to innovate faster and those who see emerging technologies as motivation to change are still in a very strong position to shape their industry. Proven security systems, vast existing customer bases, financial expertise and an established reputation within the industry for navigating financial regulations are all key strengths that more agile companies cannot simply acquire overnight.
Furthermore, traditional banks offer many in-person services, which fintech rivals do not. The ability to visit a bank branch is still important to many customers and traditional banks are better placed than disruptive brands to take these customers with them on a journey to digital-first services.
However, that journey does need to be underway. Banks must start transitioningaway from old-fashioned business models and legacy technologiesthat were never designed to support a seamless, customer-centric experience across online channels and must plan for how they take their current customers with them..
The race ahead may seem daunting. Intense competition will be advantageous to consumers and will certainly drive change in the industry.But while size and legacy of many banks may feel like a burden in an age of agility, by investing in innovation and squaring up to disruptive brands, they will see how the hallmarks of banking heritage can provide a strong foundation in a period of great opportunity.Banks still have it within their power to shape the future of their industry but they must act to do so, or watch as others shape it around them, or without them.