By Christer Holloman, CEO and Co-Founder of Divido
It’s no industry secret that FinTechs have had a profound impact on the Financial Services sector. The longstanding monopoly of both retail and investment banks has started to deteriorate as consumers have been drawn to the young and disruptive appeal of new financial technology companies. Held back neither by legacy systems nor tradition, they are risk-taskers, experiment with new technologies and deliver innovative services. All of these attributes appeal to the modern consumer. As a result, FinTech growth has been astounding. From relative non-existence a decade ago to a major influence on global markets, funding of FinTech start-ups has increased by 41 per cent over the last four years alone. Total investment now stands at almost £30bn.
Naturally, such growth breeds concern for incumbents, and working out how to fight back is a challenge many of the established providers are facing. Many fear that they are set to lose business to these emerging challengers, particularly in the payment and personal finance sectors. According to the latest PWC findings, 88 per cent of Financial Services executives believe that their business is at risk from FinTech. And this fear is not confined to just the UK – the sentiment is felt across Europe and the U.S.
For many banks, this feeling is justified. The industry is all-too-aware of challenger banks emerging around the world, placing pressure on traditional banks to adapt. For a number of banks, the response has been to reposition themselves as technology companies, investing heavily in their IT personnel and infrastructure to offer new services which appear disruptive, flexible and innovative. Similarly, they are investing their own money in FinTech companies, launching accelerators to support and advise companies on how to develop and market their offering, in the process attempting to shrug off a reputation of restraining tradition that has hampered them for a decade.
Yet this latent sense of fear may not be necessary. Rather than being competitors to banks, many FinTechs can be extremely effective partners. And with the UK government just announcing its first FinTech strategy, now is as good a time as any to build a collaborative relationship. Under the strategy, FinTechs will be provided support, advice and grants in an environment designed to help them flourish. For banks, this means they can monitor the FinTech landscape and identify companies which are building successful, industry-changing solutions and pick their partnerships accordingly. Banks do not have to be the innovator, in many ways they have neither the time nor flexibility to be. Through choosing to partner with, not compete against FinTechs, banks can avoid the risks associated with implementing new products, whilst leveraging new technologies and growing their business. In return, FinTechs are given exposure and can boost their profits.
One area which partnerships of this kind have flourished is in retail finance. Point of sale finance is a new payment trend and in 2018 alone, point of sale finance lending will total over £5bn in the UK. This figure is set to rise as customers increasingly demand more accessible and instant finance options, and merchants recognise the decisive role finance plays in securing the sale. By partnering with FinTech retail finance providers, banks can directly offer finance to their customers, providing them with a key source of revenue – without the risk, time and investment involved in developing their own system. It helps at both ends of the sales funnel – from attracting new customers, to upselling to existing ones in order to increase overall lifetime value.
The FinTech industry is vital to driving the banking sector forward. Discussions about how banks can fight back against FinTechs and reclaim lost territory are largely misplaced. Banking executives should not be focusing on how to eliminate the threat, but instead how to collaborate with them. For through this partnership, they can improve their services and provide consumers with innovative ways to handle their finances that they have come to consistently demand.
Christer Holloman is the CEO and co-founder of Divido, a platform for retailers, lenders and payment providers to offer their customers the option to pay monthly for any product or service. Divido works with over 700 partners including HTC, BMW and BNP Paribas.
Divido connects multiple competing lenders, delivering high accept rates and low fees. The platform is also omni-channel, available online, in-store and via mobile, and works across multiple countries through one integration.