Why FIs need to Engage with FinTechsGorkem Cokcetin
The increasing overlap between finance and emerging technologies is driven by technological and digital innovations prompted by customer desires. Financial institutions are moving toward technology, and technology firms are moving toward finance. This phenomenon is one of the essential trends today’s digital economy. This proves the prophecy of the statement which Bill Gates said in 1994 “Banking is necessary, banks are not”
In this competitive and changing environment banks must be able to adopt new innovations rapidly as they happen. Historically, banks have created sustained competitive advantage and defended it for decades. This view needs to go out the window; today’s hyper-competitive environment will not allow it. Maintaining a competitive advantage is a continuous process of sourcing and replacing emerging technologies within the portfolio as they become available and retiring those the market has not selected.
Rather than defending historical advantages, banks must welcome the practice of cultivating transient advantages—and being consistently hungry for potentially game-changing innovations by engaging with FinTechs. Moreover, to seize opportunities in the rapidly evolving fintech space, financial institutions must address slow capacity for change and restructure legacy processes to enable decision-makers to act once those potential transient advantages are identified.
What FinTechs and banks can offer one another
FinTechs provide banks with extremely needed customer experience and market intelligence. Banks can see which new offerings show promise and use that information to deploy new solutions rapidly through Fintech engagements. In fact, more than 50 percent of banks report they are actively searching for acquisitions, partnerships, and accelerators to access exciting new technology, and more than 80 percent expect to increase fintech partnerships within the next five years.
And to be sure, it’s not just a matter of banks needing FinTechs the reverse is true as well. They each have their strengths and weaknesses. The fact is, FinTechs have little to offer without the data, trust, operational excellence, and regulatory standing that established financial institutions can provide. Both therefore need to become strong collaborators and partners to realize the full value of technology and digital innovations and change the finance.
Otherwise BigTech firm will cover the gap and take over the finance and meet all the financial needs of consumers with their big data, technology and financial power.
As Darwin said “It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change.” Let’s apply S.E.E.E.D to transform FinTech engagements and survive as a Digital FI.