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GAME OF FINANCE

By Sonny Singh, senior vice president and general manager, Oracle Financial Services

Sonny Singh
Sonny Singh

Much has been said about fintechs being bad news for banks, but this couldn’t be far from the truth. Looking at the bigger picture,fintechs may well be the best thing to happen to traditional banks and the banking sector for some time.

Many have already acknowledged the disruptive nature of digital technology and its potential to completely transform the retail banking sector by introducing new digital services and products. You wouldn’t have to search long for examples:just look at the impactUber is having ontaxis or Airbnbon hotels.At this point in time, there are not many who would bet on traditional banks winning in a head-to-head contest against digital innovators. However, this is less about one throne and a kingdom, and more of a breakneck race towards the bank of the future. A race that “traditional” banks may actually do well in.

The FCA’s regulatory sandbox, aimed at supporting innovation and promoting competition in the interests of consumers, is to be applauded. For the most part, this move to make it easier for innovative fintech firms to challenge the well-established practices and processes of banking giants should be seen as a positive sign that the industry is finally ready to embrace change.

It has created a lot of noise among financial regulators across the world and highlighted the UK’s achievement in creating a vibrant ecosystem for fintech innovation. This corroborates with a report published by HM Treasury in partnership with EY in February, which declared the UK as the global hotspot for fintech innovation.

New digital banking services such as GoBank, Mondo, Venmo and even Google and Apple are challenging many of the traditional banking aspects that were, until now, unchangeable. Theseservices are built specifically for the purpose of online and mobile service delivery, making them more flexible and scalable as technology and consumer trends change.

Traditional bricks and mortar banks on the other hand,lumbered with figuring out how to integrate their traditional operations into online and mobile platforms are nowpushing beyond their boundaries to rapidly rebuild, digitise and diversify as never before. This push towards innovation is allowing traditional banks to compete with their digital counterparts; the race between challenger and traditional banks presents an innovation gold mine.

Established banks do however have some unique advantages that can set them apart from modern banks, such as stronger security systems, a pre-existing customer base, established delivery channels, and financial expertise, along with experience navigating many of the financial regulations. These advantages create a stronger base from which to innovate. While the challenger banks innovate more quickly, they also have an increased risk of stumbling and falling by the wayside.

There is also one key service that traditional banks offer that is surprisingly appealing to millennials: real, live people. Alongside older consumers, they prefer the presence of brick-and-mortar banks.

Challenger banks and fintechs still have some work to do if they are to meet the evolving needs and demands of customers. The pace of innovation must be kept up while also building up security and determining how and whether to offer a channel for human interaction.

Ultimately, it is technology that will allow traditional banks to compete with their fintech counterparts. And this requires a move away from the typesof legacy technology designed for a traditional branch-based, one-dimensional banking experience, to working in environments like the FCA sandbox.

While the task at hand may appear daunting, the healthy competition between both camps can only be good news for consumers. It may not seem apparent at first, but both traditional and challenger banks are heading for the same objective: creating safe, convenient and digitally accessible financial services and products of the future.