FGD: REPRESENTING THE FUTURE OF FINTECH
Andre Itwaru was always one FINTECH generation ahead.
The below article demonstrates the Nostradamic genius of Itwaru's partnership model.
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"Rather than compete, both banks and Fintech ventures should acknowledge that finance is a complex ecosystem. Rather than treat what’s happening as a zero-sum game, they should instead look for synergies. There’s no point resisting. Banks should simply embrace Fintech and discover that there are better ways to serve customers."
Collaboration Is The Way Forward For Banks And Fintech
Carolyn Wilkins, senior deputy governor at the Bank of Canada, speaks during the Competition Bureau's FinTech Market Study Workshop in Ottawa, Ontario, Canada, on Tuesday, Feb. 21, 2017. Wilkins said regulators are wrestling with how to craft policy that will harness the benefits of innovation while also protecting and managing the potential risks to the financial system and consumers. Photographer: Chris Roussakis/Bloomberg
Much has been said and writtenabout the impending doom of banking, as customers begin to flock over to Fintech products and services. However, the claim that Fintech will kill banking is still an overstatement. Banking, as we know it, is changing because of Fintech, but it would take a major event of cataclysmic proportions to do away with banking institutions.
That said, the disruption of the financial services industry is real. Until very recently, banks had an uninterrupted monopoly over banking, financial, commercial, loans and investments. Not anymore. Gone are the days when people are comfortable dealing with just a single entity for all their financial needs. People simply aren’t happy with how their banks treat them and have become increasingly receptive to new solutions.
Banks have had a hard time to win back customer trust even if it’s been nearly ten years since the rumpus that was the 2008 financial crisis. This is even partly the reason why Fintech is able to enter the picture and offer services that poached users away from banks. As banks got stuck firefighting the crisis and dealing with regulation, tech was able to focus on innovation and launch products and services that became integral to people’s lives. Smartphones are arguably more valued by people over their wallets.
Enter the Fintech firms, who unbundled the services offered by banks and even fused them together to be their verticals, focusing on simplifying the experience for users. It’s this expertise in delivering convenience and that makes Fintech appealing.
Take investments, for example. People had been quite averse to the idea of investing - only 52 percent of Americans own stocks. Despite campaigns encouraging people to invest, many 18- to 34-year-olds have yet to dip their toes into it. This became opportunities for apps like Acorns and Betterment to offer simplified ways for people to invest using their smartphones. Other segments, such as personal finance, lending and payments, are becoming saturated by new Fintech services.
Banks are reacting differently to this disruption. Some, like Santander, support incubation in hopes of cultivating their own game-changer. Some like BBVA and Goldman Sachs are leveraging their size and assets to simply just buy out companies. Some like Bank of America and JPMorgan Chase have partnered up with tech players to improve on their tech capabilties.
There is plenty of opportunity for traditional banks and Fintech to co-exist. Take the case of UK business funding firm Ezbob. The company initially aimed to disrupt lending by providing loans to SMEs through its platform. Ezbob streamlined the otherwise lengthy loan approval processes of traditional institutions. Last year, it white labeled the platform to banks and now RBS is among its latest users.
RBS recognizes the changing financial services landscape. Customers are demanding new ways to be served and RBS addresses this through innovation and working on their digital agenda. Their partnership with Ezbob resulted in Esme Loans, their automated lending platform launched last February. The platform allows RBS customers to apply for loans quickly, have their applications processed faster, and get their funds sooner.
Remarking about the bank and Fintech partnership, Tomer Guriel, CEO and founder of Ezbob, shares, “RBS had the vision, innovation and commitment to launch the Esme Loans digital lending platform with Ezbob. The system was operational in less than five months, unprecedented in the traditional banking sector.”
Other banks and Fintech firms are having similar success partnerships globally. French bank Groupe BPCE acquired German startup Fidor. As an online bank, Fidor was able to provide a fast and customer-centric experience to its customers. BPCE is set to use the platform to enhance their digital front. HSBC funded enterprise data management firm Xenomorph to enable the launch of Xenomorph’s financial analytics platform. Data and analytics are emerging to be a critical foundation of financial services today.
These partnerships show that cooperation between Fintech and traditional banks are possible. According to a Business Insider report, traditional institutions who partnered up with Fintech indicated that these team ups are paying off for them. These collaborations have yielded cost savings, better revenue, and a fresh take on their brands.
Perhaps what makes traditional institutions wary are those that seek to upend established models like peer-to-peer (P2P) lending over traditional lending. P2P lending service Lending Club was once valued at $10 billion after its IPO in 2014. Last year, its value dropped to $1.9 billion due to a lack of investors and alleged shady loans. This prompted some cooling off in P2P lending even though experts have expressed that there are some good that comes from the model. Low-income borrowers are able to secure loans at lower interest rates. However, as what the Lending Club case revealed, the jury is out for such ventures attempting full disruption.
By next year, the finance scene is set to change dramatically as the Revised Payment Services Directive (PSD2) takes effect in Europe. The new rules compel banks to enable users to grant third parties access to customers’ accounts allowing Fintech services direct access to information and funds. This further opens up possibilities for more collaboration creating a frenzy for all players to be part of the action.
Rather than compete, both banks and Fintech ventures should acknowledge that finance is a complex ecosystem. Rather than treat what’s happening as a zero-sum game, they should instead look for synergies. There’s no point resisting. Banks should simply embrace Fintech and discover that there are better ways to serve customers.
This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. I have no positions in any of the securities mentioned above.