Can fintechs and banks live harmoniously?


Now that open banking has come into force many are predicting that nimble fintech companies will be able to leverage customer data - with their permission - to further disrupt the big banks.

But is this really the case? Or will it create a more collaborative environment as banks focus on core services and fintech companies fill in the niche gaps?

During a panel discussion on Monday, titled 'fintech, disruption and the near future', at London Fintech Week the conversation turned to whether smaller fintech firms will be swallowed up by the big tech companies or if they are destined to be niche players in a more diverse financial services ecosystem.

Nicole Buisson, small business director at New Zealand-based fintech Xero feels that fintechs can bring value in their ability to solve very specific problems and collaborate with the banks, who own that customer relationship.

"The reason startups exist is that they fill niche gaps," she said. "They are pieces of the jigsaw puzzle that perhaps other people aren't focused on. So I believe there is still a big role for fintechs to play."

Geoffrey Horrell, director for product incubation at Thomson Reuters added: "There are literally thousands of fintechs and I'm sure the barriers to entry for financial services globally have never been lower.

"Increasingly the banks are looking at those fintechs and see they don't need to invent everything and there is a great deal of innovation here they can source and partner with these new organisations to bring the benefits to their customers."

As the big banks still primarily own that customer relationship they are also well positioned to tap into the new open marketplace to bring their own innovative products to market, making the environment as competitive as it has ever been.

Take HSBC's new Connected Money app, which allows HSBC customers to view any UK current accounts, credit cards, mortgages and loans in one place, with other added value services layered on top.

As Tom Bull, director of fintech strategy at EY said: "The primacy of those customer relationships that the banks currently enjoy is somewhat under threat by allowing third parties to operate those tools.

"Equally the banks enjoy a lot of trust with their customer base, and that is a historically sticky relationship, so the banks are well placed as well, and equally able to tap into those APIs from other banks, so it is an incredibly dynamic market."

Open banking

Bull believes that fintechs, especially the challenger banks in the UK, have done a great job of raising the bar when it comes to digital experiences for retail banking customers. Now, with open banking, this can be taken further.

"I do think open banking presents a big opportunity in that it effectively forces banks to be operators of public APIs that offer the customer their transactional data that can be easily ported and given to third parties, and also the ability to initiate payments outside of the banking app, which has never been possible before," he said.

This could open the door to a whole new range of fintech companies we have never seen before, from "point of intent offers through analysing a customer's financial situation to an app for the best place to move your money and get the best rate," he said. "So there is so much you can do when you put together those building blocks that open banking offers."

Read next: What is open banking? What does it mean for banks, fintech startups & consumers?

This mirrors something Bull's EY colleague Imran Gulamhuseinwala, the open banking implementation trustee for the Competitions and Markets Authority (CMA) said during the Innovate Finance Global Summit in London earlier this year.

"Financial services has been a utility-based sector with a small number of players providing a largely homogeneous set of products," he said.

"What the fintechs have really demonstrated is you can come into the market, you can provide a proposition because the barriers to entry are so low now. You can challenge some of these established players.

"So the question in my mind is: has fintech demonstrated that this entire industry is transitioning away from a utility to something that is more akin to other sectors in the economy? Be that retail or technology."

Culture and innovation

Some banks are looking to create a fintech culture all of their own. Horrell from Thomson Reuters told an anecdote about some time he spent with HSBC's digital banking team in Hong Kong recently, and how the bank fosters a fintech mindset.

"It was really interesting that they pulled them out of head office and into a WeWork in Hong Kong," he said. That team was initally responsible for bringing core banking services to social media messaging services.

"So that's a challenge to the culture of the bank and they are adopting the fintech way of working and have hired people from fintechs to do that," he said. "I see that kind of approach the big banks are taking and they still have enormous technology budgets so they have huge amounts of spend in that area but that doesn't mean there is no room for fintechs."

This touches upon a big trend in financial services: the creation of internal 'innovation teams' within the big banks.

"It is always a tricky balance to try and centralise innovation," Bull said. "Does that mean no one else can innovate if head of innovation hasn't seen it?"

Bull believes that the key is balance. In his words: "Having some innovation capability within business units and product areas and some central innovation that has a good overview of the whole industry and have support of people in the business that can get things done."

Copyright © 2018 IDG Communications, Inc.

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