The banking industry is experiencing disruption at an
increasing pace. Over the past few years, traditional financial institutions
and non-traditional fintech firms have begun to understand that collaboration
may be the best path to long-term growth. At the same time, big tech firms are
offering financial services, creating techfin solutions.
The rationale for collaboration is the ability to bring
strengths of both banks and fintech firms together to create an stronger entity
than either unit could bring on their own. For most fintech organizations, the
primary advantages are an innovation mindset, agility (speed to adjust), consumer-centric
perspective, and an infrastructure built for digital. These are advantages that
most legacy financial institutions don’t possess.
Alternatively, most banking institutions have scale, a
stronger brand recognition and established trust. They also have adequate
capital, knowledge of regulatory compliance and an established distribution
According to the World Fintech Report 2018 from CapGemini and LinkedIn, in collaboration
with Efma, “Most
successful fintech firms have focused on narrow functions or segments with high
friction levels or those underserved by traditional financial institutions, but
have struggled to profitably scale on their own. Traditional financial
institutions have a vast customer base and deep pockets, but with legacy
systems holding them back.”
The challenge will be the ability to establish an
environment where collaboration can flourish as opposed to stifling the
beneficiary attributes of either partner.
Fintech vs. Techfin
The difference between fintech and techfin is based on the
origin of the underlying organization. Fintech usually references an
organization where financial services are delivered through a better experience
using digital technologies to reduce costs, increase revenue and remove
A basic example of a fintech offering is the mobile banking
services that most traditional banks offer. More commonly, fintech refers to
non-traditional financial offerings such as PayPal, Zelle and Venmo in the U.S. and digital-only Starling Bank, Monzo and Revolut in the U.K.
Alternatively, techfin usually references a technology firm
that finds a better way to deliver financial products as part of a broader
offering of services. Examples of techfin companies include Google, Amazon,
Facebook and Apple (GAFA) in the U.S. and Baidu, Alibaba & Tencent(BAT) in China.
A couple years ago, Jack Ma, technology visionary
and co-founder and executive chairman of Alibaba
Group, described the difference between Fintech and Techfin.
There are two big opportunities
in the future financial industry. One is online banking, where all the
financial institutions go online; the other is internet finance, which is
purely led by outsiders. – Jack Ma
In both instances, success of these organizations in
finance will be based on the ability for the institution to collect and analyze
massive data sets, learn from the insights to improve personalization and
digital engagement in real-time, and expand offerings in response to consumer
A New Competitive Landscape
Even with the best collaboration, the ability for legacy
financial institutions to compete in the future banking ecosystem will be
challenged by the techfin powerhouses. Built on digital platforms, these huge
technology organizations are efficient and have already found ways to reduce
operational costs and monetize their business models.
According to Bain,
“Many of the tech giants possess the ingredients of success: digital prowess,
large customer bases, organizations well versed in improving the customer
experience, and ample leeway to extend their corporate brands into banking.”
More concerning may be that some of these firms are generating a level of trust
previously reserved only for traditional banks and credit unions.
As a result, an increasing percentage of consumers are
willing to use financial products offered from these non-traditional firms –
especially where the experience is superior to that offered by legacy
organizations. A potential to shift revenues from other businesses (such as
retail) to enhance banking offerings can completely change the competitive
It is expected that demand for products and services from
fintech firms and large tech companies will only increase as more consumers
become familiar with new digital offerings. This is especially true for younger
consumers, who have grown up with digital devices.
Techfin firms start with
technology and wonder how that can be used for commerce and trade.
Alternatively, fintech firms start with existing trade structures and wonder
how to make them cheaper and faster with technology. I liken it to fintech
firms are making faster horses whereas techfin firms are working with
airplanes. – Chris Skinner
More and more, people will get annoyed when they’re forced
by bank policies and processes to use non-digital channels for everyday banking
business. Traditional banking organizations cannot rely on providing
checking accounts and loans only. Competitors are already eating away at
significant parts of the banking value chain with the potential of limiting
banks to becoming nothing more than utilities.
The future of the banking industry will depend on its
ability to leverage the power of customer insight, advanced analytics and
digital technology to provide services that help today’s tech-savvy customers
manage their finances and better manage their daily lives.
As financial and technology organizations embrace a broader
view of banking, offering both banking and non-banking services, the ultimate
winner will be the consumer regardless of which provider they select.
Click here for the original
article from Forbes.