EU regulation will drive U.S. banks to embrace FinTech or lose market share

Europe's financial services industry has been forced to embrace open banking and customer data sharing. Now, with PSD2, U.S. banks will soon have to follow suit or face increased online competition.

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In order to play catchup with their European and Asian counterparts, U.S. banks need to see the FinTech industry not as competition but as an opportunity to help them create a thoughtful collaboration strategy that aligns to an organization's purpose and strategy and ultimately improve the client's experience.

Or eventually FinTechs will be acquired by banks, Vilardell said.

A digital company is a company that can create value in existing or new areas through interoperability, openness and agility, Vilardell said. It is a company that weights what it does as much as how it does it. It is not only about business and technology; it is about how the organization works as a whole (without silos) with harmony to embrace change and learn continuously.

One of the first digital banks, FidorBank, which originated in Germany, started as a social community to exchange information and opinions on financial products and financial advisers; it evolved into an "anytime, anywhere and hyper-personalized" bank by applying emerging digital technologies and consumer-centric principals, Vilardell said.

FidorBank mobile banking apps FidorBank

FidorBank started as a social community to exchange information and opinions on financial products and financial advisers; it evolved into an "anytime, anywhere and hyper-personalized" bank by applying emerging digital technologies and consumer-centric principals.

While licensed as a bank in Germany, FidorBank also sells its open banking digital platform fidorOS, which has a fully integrated front-end layer, API layer, banking modules and core functions, to various financial services and non-financial services customers, enabling them to build a digital banking system.

For example, FidorBank partnered with German telecom provider Telefónica O2 to build a digital bank in only eight months atop its fidorOS platform.

FidorOS banking modules include a core customer account, payment and data management and onboarding functions, as well as features such as customer engagement through a community forum and customer intelligence through advanced analytics.

U.S. financial services have begun embracing blockchain, advanced analytics and AI for operational efficiency. For example, last year JPMorgan Chase & Co. began implementing its COIN (contract intelligence) machine-learning system, which runs on a private cloud and is aimed at decreasing mistakes and increasing efficiency in processing legal documents and contracts.

In fact, the five largest U.S. banks are investing heavily in deploying AI and machine learning to create more efficient services, according to a report.

"Based on what I see in Germany, Italy and Switzeralnd, U.S. banks are not that far behind," Vilardell said. "The problem I see with U.S. banks compared with European banks is the end customers are not seeing banks investing ... money in improving customer experience. U.S. banks are taking their customer base for granted."

If banks do not evolve to be more modular in their IT deployments and more focused on the customer experience, they will struggle with FinTech competitors that will eat a part of their market share in concrete arenas, such as mortgages, online payments or lending.

Vilardell's advice to U.S. banks: don't wait for regulators to mandate an open business model, and embrace the concept of becoming a digital company, which doesn't necessarily mean being technology-driven.

"It means having a digital culture, which is related to how you release products and how you work internally — not siloed but collaboratively — working across different departments," he said. "And, at the end of the day, it's about how open you are to learning from other segments, other industries and other companies."

Copyright © 2018 IDG Communications, Inc.

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