How banks’ platform strategies are shaking up the fintech industry
The changing platform strategy of major banks has led to a dramatic shift in the way that both established fintech firms and newly emerging start-ups are impacting the industry.
Banks have realised that they must become platforms to excel
While five years ago only a small number of banks had begun to consider their abilities to position themselves as platforms – able to offer decentralised and distributed services to customers – that realisation has now taken root at a majority of major industry names.
James Buckley, head of Europe for Infosys Finacle, says that a several banks are now opening themselves up, and dropping the traditional front-to-back methodology. “Banks are realising that the old way of doing things, this ‘I manufacture specific products and sell to specific networks’, no longer works.”
The change, says Buckley, has been driven by fintechs and start-ups. “They’ve realised that they don’t have to do everything themselves and build everything themselves in house, and they can become a much more open network proposition than they have been in the past.”
Yet a shift to the digital landscape has not been plain sailing for financial institutions. A reduction in interest rates following the financial crises, and a lack in their recovery, has meant that there is a continuous pressure on lenders to reduce their costs. This comes to bite hardest in the retail and distribution divisions.
A solution to the cost reduction has been to digitalise operations. While saving money, Buckley argues that the shift has meant banks entered into a highly competitive space where they have lost their niche.
“Digitisation means you’re not reaching your customer in the traditional way – they’re not walking into branches and they’re not picking up their phones.
“Once you’re digital you’re in a race to provide value-added services and experiences. Now the you’re in a much more direct competitive race with other banks but also with the fintechs that can in many cases provide a superior experience.”
James Buckley, Infosys Finacle: “The idea of cooperation in a digital world is difficult.”
While some may believe that the market has shifted to a model focused on collaboration and cooperation between fintechs and banks, especially when facing up to the threat of technology giants like Facebook, Apple and Alibaba, Buckley believes that there is little room for true cooperation.
“You’re either attacking the established organisations as a fintech, aiming to provide better experiences, or you’re the incumbent entering a new space with new competitors.
“The idea of cooperation in that world is a bit difficult. In more cases it appears to be the banks looking to bring certain capabilities into orbit around themselves and then looking to either acquire, increase their distribution of products, or temporarily improve their services while they work on something more concrete in house.”
The ongoing impact of the coronavirus will also be a litmus test for the industry, especially for emerging fintechs and start-ups trying to gain funding and support from a market in one of its most volatile periods.
“Funding will be much more difficult for lots of fintechs going forward and I expect there will be a rationalisation in the market for 12 to 18 months, certainly in Europe and the US. Fintechs are going to be expected to fund themselves in many cases, something they’re likely not used to.”
Where could that leave the fintech market? For those that can’t get the funding, the next best thing is finding a buyer, says Buckley. “I think there’ll be a market for picking up propositions that the banks and other organisations will follow, especially cash rich organisations that aren’t sitting on lots of corporate debt. They will pick up quite a few fintechs that can augment their business propositions.”
Sponsored insights by Infosys Finacle
