5. Partnerships Between Banking and Fintech
The rise of interest in the fintech sector has been caused by increasing unmet consumer demands for digital banking solutions fueled by digital advances in many other sectors (retail, hospitality, travel, etc.). These consumer demands, combined with reduced barriers to entry in some markets, have improved the availability of funding for the sector and have increased the interest in potential partnerships.
The future of collaboration and competition between legacy financial organizations and new fintech providers remains somewhat uncertain. Banks and credit unions must continue to explore strategic options, however, as technology changes and regulations evolve.
According to the World Fintech Report 2017, by Capgemini and LinkedIn, in collaboration with Efma, 50.2% of banking customers across the globe are using the products or services of at least one fintech provider. In addition, it was found that tech-savvy consumers are supplementing traditional banking services with fintech solutions at twice the pace as less tech-savvy consumers (67.3% vs. 33.6%).
While fintech firms usually have the “first mover’ advantage, delivering customer-centric solutions at a low cost, without the burden of legacy infrastructure, they still lack scale in most cases. This is because traditional financial organizations continue to be viewed positively by consumers in the some of the most important foundational areas such as trust.
It should be noted that both traditional and non-traditional financial service providers are struggling to keep up with the demands of the increasingly digital consumer. It is thought that using advanced analytics to better understand the consumer and deliver personalized solutions will ultimately determine the winners and the losers.
Fintech is Simple, but Still Awareness Lags
There is nothing simple about opening a checking or current account, adding a savings plan, taking out a loan or establishing an investment or insurance relationship at a traditional bank. At most institutions, the paperwork is intimidating and the consumer is usually relegated to visiting a branch office.
That may be why the simplicity of setting up an account was the overwhelming reason for using a fintech provider according to EY’s first Fintech Adoption Index. More attractive rates, access to different products and services and a better online experience were also popular responses, but these were dwarfed by the impact of making the process simpler for the consumer to engage.
The response to the fintech movement will differ for each organization, with the options of building internally, buying, partnering or playing “wait and see” all being options. But with the penetration of smartphones and wearables increasing and the expectations being set outside the financial services industry, there is the need for a logical approach for transformation and differentiation.
“In 2017, there will be a widening of the gulf between banks that are building meaningful partnerships with fintech firms and those that think that they are because they have a couple of tech vendors and a procurement department. There will also be an explosion of fintech offerings for small to medium enterprises (SMEs).”
“2017 will be the year of Fintech rethinking its role. FinTech will not disrupt banking, but will deeply renovate it. Rethinking the expected speed of change, which is slower than start-ups want but faster than what bankers hoped. And, rethinking the fintech business model, looking for more revenues and less dreams.”
– Roberto Ferrari, General Manager of Chebanca!
“I see collaboration between fintech and traditional financial services firms still being the big story for 2017. Many startups need additional investment and will require a longer runway to achieve scale and profitability. The environment will become even tougher as rates rise. We might also see the first mega-mergers and acquisitions between fintech unicorns and banks as the market begins its inevitable shake up.”
– Bradley Leimer, Head of Fintech Strategy at Santander, US
“The lines between banking and fintech companies will blur, driven by open APIs, actionable data, and consumer demand. Traditional banking — fixated on paper, tellers, and mass marketing — will be crippled by competition from savvy tech partnerships and forward-thinking institutions.”
– Jon Ogden, Director of Content at MX
“The Fintech debate shifts from Tech to Trust. Incumbent financial brands have formidable brand bulwarks, but they must resist being unbundled at key journey moments. At the same time, fintech challengers need to focus beyond cold lead gen to richer nurture and consideration campaigns.”
“The FinTech hype is at its peak. At the same time, many early fintech firms are out of money, and either need to shut down operations or merge with traditional banks. 2017 will become the year of symbiosis of fintech and banking.”
– Frank Schwab, Member of Technology Advisory Board at Sberbank
“With rates rising and venture funding tapering off, the fintech sector will need to show how they can grow the bottom line more than ever and the only way to do that is with a large client base for distribution. Only the banks have that today.”
– James Anthos, Director of Strategic Planning at BB&T
“Fintech startups will come together in 2017 to create solutions that solve fundamental business problems, old or new. There will be more regional hub and ecosystem bridges, and collaboration to emerge, ensuring there is a global view of all innovation coming up, regardless of where it originates from. Globalized efficiency will the outlook for fintech in 2017.”
“Banks struggle to deliver innovation will lead to more Beta Banks launching and a maturing of how banks partner with early stage fintech firms. It will move from innovation theatre/stuff to excite the exec. to serious programs supported by a full launch to customers, capital injection etc.”
– James Haycock, Managing Director of Adaptive Lab
“Banking has finally realized that they are falling short when it comes to innovation and are beginning to acquire and invest in small fintech startups Not surprising that 25% of global banks would buy a fintech company or that 60% would partner with one.”
– Sophie Guibaud, Vice President of European Expansion at Fidor
“Fintech will manifest itself as a techno fantasy, drawing attention away from the real problems to be tackled: cybersecurity, trust and identity, which only can be solved through laser-focused industry and government efforts.”
“With the uncertainty of an election year in our rearview mirror, 2017 will finally be the year that banks and lending fintech firms have to compete against each other in a rising rate environment … and the fintech firms that have forged relationships with banks will likely live to see 2020.”
– Chris Fleischer, Market Research Guru
“Just as repartitioning of the world is happening through political forces, the repartitioning of the global digital banking space is going to happen by the most powerful digital ecosystems. The digital noise will fade away.”
– Barbara Biro, Manager of Digital Transformation at Citi
“We are witnessing the beginning of an important restructuring of the retail financial services, moving from a vertical, integrated, fully owned model to horizontals of functionalities where new type of agents will compete against each other but together, in various configurations they will be able to deliver diversified services at much lower costs.”
6. Expansion of Digital Payments
Despite an increase in awareness of mobile payments, usage continues to remain flat, illustrating the challenges in changing consumer behavior when merchants and issuers can’t deliver a strong value proposition. Will 2017 be the ‘tipping point’ for digital payments?
According the 2016 North America Consumer Digital Payments Survey from Accenture, 56% of North American consumers are now aware of mobile payment services — a 4% increase from 2015. However, the regular use of mobile payments remains flat at 19%, with 60% of consumers using cash at least weekly to make purchases at a merchant location (a drop of 7% from last year).
Consumers are expressing optimism about mobile wallet adoption in the future. anticipating a nearly 60% increase in the use of mobile wallets from card networks (from 14% in 2016 to 22% in 2020) and from technology companies (from 13% in 2016 to 21% in 2020). The usage of bank-branded mobile wallets is also expected to increase from 14% to 19%. While digital payments options are expected to increase, traditional payment alternatives are in the decline.
For financial institutions to achieve a first-mover advantage, barriers to consumer adoption of mobile payments must be addressed. Of the nearly two-thirds (64%) of consumers who have never used their mobile phone for in-store payments at a merchant location:
- 37 % said they have not done so because they believe cash and plastic are fine for their payments needs
- 21% prefer not to register payments credentials into their mobile phone
- 19% are concerned that unauthorized transactions may occur
To be a market maker in the payments marketplace, providers will need to commit to increasing the level of personalization, leveraging insight not commonly used today. This includes not only payment data, but locational, behavioral and even social insights.
“Faster payments will start to become the standard in the US. Faster payments will start with simpler payment types, but will evolve during 2017. Acceleration of payment speed can help financial institutions regain control of their customer’s payment relationship and help drive towards their goal of increasing digital engagement.”
“A few banks will seize on real-time payments to cut out credit card companies, rebuild direct payment relationships with customers, and use technology to offer quick, cheaper, short-term personal loans as an alternative to cards.”
– Tom Groenfeldt, writer for Forbes
“Large commerce and payments platforms (such as Facebook, Amazon and PayPal) will get more aggressive with their financial services offerings, leading with more customer-centric innovation. We will also see massive disruption by outsiders in China with Ant Financial, Tencent, etc.”
– Gaurav Sharma, Executive Director of Atlantis Capital
“2017 will be the year when bank-based real time P2P will gain mainstream adoption with Zelle. The fact that banks are not planning on charging for this service will be a key driver to adoption. This may finally be a nail in the coffin for checks.”
“2017 will see the rise of the super commerce platforms, with many of these originating in China. Names like Ant Financial, Tencent, Uber-beater Didi Chuxing, Weibo and Taobao, will join more commonly known platforms like Facebook, Apple and WeChat as social merges with payments globally.”
– Matt Dooley, Director of Next Money Hong Kong