19 October 2016
Collaboration with fintechs is key for the future of banking
The evolution of fintech means the end of traditional banks. That’s the eerie message of entrepreneur Mike Galarza recently on Fintech Weekly. According to him ‘banks are not going to be washed away overnight by an army of fintech firms that are still, as yet, unprepared for regulatory responsibility. However, their industry is moving in that direction.’ How should banks and involved stakeholders take matter in own hands against this uncertain future?
It was a year ago when Jamie Dimon, chairman of one of the largest banks in the world (JPMorgan Chase), said on Business Insider: “Silicon Valley is coming.” In other words: keep an eye on the fintech startups. “They are very good at reducing the ‘pain points’ in that they can make loans in minutes, which might take banks weeks. We are going to work hard to make our services as seamless and competitive as theirs. And we also are completely comfortable with partnering where it makes sense.”
Banking business are at risk
McKinsey calculated that 40 percent to 60 percent of the profits in the banking business are at risk. The competition from fintech is a huge factor in this process. That is why digital entrepreneur Mike Galarza thinks that traditional banking runs at an end. But a collaboration of the traditional parties with fintech startups could be the answer. This way, they can combine their strengths while addressing each other’s shortcomings. Banks, for example, are inhibited by legacy infrastructure and regulations. Financial startups can support the traditional parties with their technological innovation. But startups miss the experience to make a product or service out of these innovations. Banks can also help them to scale it up.
The bank of the future could be a platform, surrounded by fintech startups who partnered with the traditional bank. Each of those fintech companies can offer a different solution, so the bank will have a complete portfolio of services. Some of the traditional parties already started this transition. Dutch bank ING, for instance, is looking for startups with good ideas, so they can partner up. “We see a lot of fintechs with useful propositions in order to improve the client experience and then clearly we do look for corporations and partnerships and that’s what we’re doing as well,” said ING CEO Ralph Hamers.
Pitfalls on the way to friendship
There are some pitfalls on the way to friendship. The startups operate in a whole new scene, while the banks have to deal with compliance. If banks and fintechs team up, they have to follow regulations without losing the power of the collaboration. Traditional parties also have to get used to a new way of working, because there are some cultural differences between a startup and a bank that has been there for decades.
But the result is promising when both parties overcome such difficulties. Think of a bank that is trustworthy and innovative. A bank where getting a loan only takes minutes instead of weeks. And a bank that is ready to address all the issues of its customer. This is the future of banking.