Martijn Hohmann, CEO and co-founder, Five Degrees 

A challenging disruptive landscape

The landscape which traditional banks and financial institutions operate within is changing and now is not the time to re-establish nostalgic ways of working if they are to survive.

Evolving customer expectations caused by digital disruption are resulting in traditional banks struggling to stay ahead of new challenger competitors. Banking customers including startups, scale-ups, large enterprise and blue-chip companies are asking for a more diverse range of products and services as one end-to-end solution.

The involvement of big techs in the banking and finance market, such as Google, Apple, Facebook, Amazon (GAFA) and Alibaba, are intensifying competition. Consumers are now used to fast, personal, safe and always-available portable solutions, and banks need to adopt this approach too.

At the same time, the introduction of regulation has created an obligation for banks to open up their APIs to third parties, or face risking non-compliance and heavy financial penalties. If these institutions are to keep up with changing customer demands while ensuring regulatory compliance, they need to ensure they have the right technology in place. 

Collaborate or die

To overcome challenges caused by a fully digital and highly personalised era, we’re seeing the formation of partnerships between banks and FinTechs across the world becoming the norm.

Martijn Hohmann

These ‘smart collaborations’ enable banks to align with customer expectations much quicker as they enable more intensive research and development (R&D) that focus on the testing of market strategies, while minimising the risk of reputational damage. The bank is able to act as an incubator establishing a clear overview of the project lifecycle, before launching the new product or service to its customers.

Partnerships between banks and FinTechs accelerate the process of‘Open Banking:’ the opening up of banks’ APIs to third parties, providing a greater array of services for banking customers, and in turn make it easier to achieve full visibility over data to align with GDPR and PSD2 regulation. 

Key steps to collaborating smarter

There are clearly many merits of banks and FinTechs working together. To ensure collaborations operate a best practice framework, the following steps must be taken:

Staying agile: Banks and FinTechs cannot afford to rest on their laurels as the market is rapidly changing. They must continue to ensure that their systems constantly adapt through staying agile.

Innovating: The innovation process is not easy and it takes a long time to get ideas to market. However it’s a pre-requisite and a focal point for future partnership investment. Only innovation can ensure that banks and FinTechs are ahead of customer needs.

Play to your strengths: Banks and FinTechs must play to their strengths with constant and regular dialogue to align strategically, both between themselves and with any stakeholders involved. 

Regulation: Banks should demand a strong partnership with their fintech partners that keeps them both up to date about compliance, regulation, and licensing requirements that could affect business and collaboration.

Culture: Banks and FinTechs need to deploy a  culture that is focused on continual improvement and adaptation to stay ahead of customer expectations and regulatory change.

Data: Banks and FinTechs need to take full accountability for existing customer data, big-data models and automated decision making, working closely on testing business resilience.

Security: Banks must not be afraid to demand the highest level of security from their FinTech partners, with a focus on continuous testing. 

The impact of Banking as a Service (BaaS)

An emerging technology which will re-shape the way banks operate is end-to-end Banking as a Service (BaaS), making it much easier for banks to deliver a full range of products and services over the Web.

End-to-end BaaS is the next step in banking strategy, and it will play a crucial role in the banking industry, accelerating digitisation and providing flexibility that customers are demanding without having to implement costly solutions.

By harnessing the power of end-to-end BaaS, banks not only cater better for evolving customer needs but achieve greater process efficiencies in strengthening their own businesses.

By 2020, smart collaborations are expected to impact up to 80 per cent of existing banking revenue pools, presenting an opportunity for those who are willing to open their doors to partnerships, embracing disruptive technologies and new ways of working.