Why Banks should collaborate with Fintechs to get ahead
5 June, 2019
Wong Wai Ken,
Country Manager - Malaysia, Stashaway
Today’s technological landscape has made it more challenging for large incumbents looking to re-shape their digital strategy going forward. With mainstream adoption of digital financial services like e-wallets, e-remittance and digital investment alternatives, coupled with the onset of regulated crypto-exchanges and property crowdfunding platforms, banks have to fend off the competition on many fronts.
More recently, Bank Negara announced that virtual banks' licensing requirements will be released by the end of this year, and one only has to look to Korea, Thailand, Hong Kong and China to see that digital banks are the way forward. Whether banks choose to view financial technology, or fintech, as a threat or an opportunity will depend on how they execute their digital strategy.
Typically there would be three options available to the bank’s management - build an in-house solution, buy or white-label a solution from an outsourced provider or to partner with an existing fintech player. The objective is to reduce the risk of being irrelevant or disrupted by a new player and achieve this in a cost-effective manner.
The first solution - building an application or solution in-house - requires a large capital investment and creates potential execution risk for the bank. The execution risk from an infrastructure, talent and compliance perspective is complicated, and it is quite often the case more feasible to build from scratch in a controlled environment. Some banks have chosen to bring ideas to fruition within an incubator or launch digital-only services in non-core markets. To overhaul a bank’s operations is often fraught with risk where legacy systems and human resource is involved, and transformations often take more time than budgeted. This often results in us seeing digital competitors race forward unencumbered. Take remisier-based stockbroking with the onset of e-broking in the early 2000s, where the introduction of new platforms caused the cannibalisation of incumbents. This leaves existing stockbrokers with competing operating models vulnerable to purely digital brokers who can focus not just on creating a great product, but also win mindshare through aggressive digital marketing.
Partnerships with fintech companies may seem daunting as the elephant in the room of “who owns the client relationship” remains. However, with commercial alignment and positioning to cross-sell other products, these concerns can subside. Partnering with a fintech which has a strong brand and has achieved product-market fit further reduces the risk of whether the Bank runs the risk of attracting customers. These new digital collaborations allow the Bank to achieve several objectives such as reaching out to a younger generation of customers, too costly to serve through traditional means, or expanding its suite of products to offer existing customers something new.
At the end of the day, it comes down to strategic positioning. Partnering with fintech companies gives Banks insight into the evolving marketplace and a view on the pipeline of ever-improving features and products. Waiting and thinking that catching up through building in-house solutions or buying off-the-shelf solutions, is a quick and simple task may leave them one step behind other traditional competitors who have made the leap and forged a strategic partnership with leading fintech players.
The views expressed in this article are those of the author alone and not the organisers of MyFintech Week 2019