Banks and fintechs: Conflict, confrontation and collaboration
-by Kuljit Singh and Varun Narang
Mahatma Gandhi once famously said, "First they ignore you, then they laugh at you, then they fight you, then you win." Who would have thought that these wise words from the hero of the Indian freedom struggle would reflect the attitude of banks towards fintechs? Having passed the first two stages of ignoring and mocking fintechs, they are now realizing that indeed, fintechs are a threat worth taking seriously, especially, when you consider the billions of dollars banks stand to lose if they continue turning a Nelson's eye to the challenge. According to a report by Goldman Sachs, financial services are at a risk of losing USD 4.7 trillion in revenue to these new tech-enabled or fintech entrants.
Now that the realization has dawned on banks about how real and present the threat is, they are beginning to buckle up to take the fight to not only defending their bastion, but also taking a more aggressive posture to beat fintechs in their own game. To this end, banks such as ABN, BBVA, Citigroup, Barclays, Deutsche Bank, and others are attempting to rewrite the rules of business by setting up innovation labs, accelerated programs, and venture capital funds to stimulate the technological experiment and match the customer services offered by fintechs.
Few cases in point are: Citibank is establishing a new fintech unit and is also testing an eye-scanning ATM. Goldman Sachs has formed a new venture for enterprise mobile technology. Morgan Stanley is investing in data warehouse solutions, mobile apps, BI and analytics tools, application development tools, PaaS, etc. ABN AMRO Bank is letting prospective customers sign up for a new account with their smartphone and face recognition. Barclays has signed deals with Blockchain startups and Deutsche Bank has launched a computerized investment advisory service called 'AnlageFinder'.
Though these are innovative approaches, they have some serious cons as well, which could make it hard to justify the energy and money put into them. This struggle could make many 'follow the herd' attitude banks to abandon their approach of innovation and nurture more practical and sustainable approaches.
Of all the approaches being adopted by banks, in our opinion, the most pragmatic and sustainable one is that of collaboration. It would be wise to follow the dictum, 'if you can't fight them, join them'. This is especially true in cases where the cost of innovation is prohibitive. This type of collaboration is happening not only between banks and fintechs but also among banks. An example of the former is investment by almost all major banks in start-ups and tie-ups with Apple, Android, and Samsung, etc. An example of the latter is the R3 where consortium which was formed when over 40 banks joined hands to encourage the development of blockchain usage in the financial system.
In conclusion, we are reminded of a famous quote by Mark Twain who said, "You can't depend on your eyes when your imagination is out of focus". Banks need to get their focus on the most critical component of this entire tussle with fintechs, i.e., customer services. Once that focus and goal becomes clear, their eyes will begin seeing the path that is most appropriate to reach the goal.