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Are commercial banks with FinTechs or not, in the innovation race?

- by Souna Uthappa and Irene Varghese

All eyes and ears were on Rio Olympics in anticipation to see who contrives the best strategy and exhibits exemplary skillset to win the race! At the end, it was the US which emerged as the ultimate winner in the game of Citius, Altius, Fortius!
Likewise, most banking executives are touting on the latest buzz - FinTech which is disrupting the financial services arena. Consumer banks have already started making strategic moves partnering with FinTech firms, so that they don't fall prey to them. Now, it's time for the less digitally-savvy commercial banks to be 'faster, higher, stronger'.

Seeing the rich banking experience enjoyed by consumer banking customers, commercial banking customers too have started demanding innovative products, platforms, and a seamless banking experience. Towards this, banks are proactively reaching out to their commercial clients in an attempt to find out their areas of concern and come up with innovative solutions, FinTech being one among them.

Recently, KeyCorp bank conducted a survey of commercial clients and found that digitizing payments is the need of the hour. Another major bank, SunTrust introduced a payment & technology unit. The objective of this unit is to focus on FinTech startups that are looking at new solutions in the commercial banking space and utilize those solution for their clients. U.S. bank  joined tech start up Plug and Play as aFinTech and security anchor partner. Leveraging FinTech, U.S. bank has also introduced mobile payment services for their aviation clients which lets its private and business pilots to pay for fuelling and services from their phone directly.

From the above examples, it is evident that commercial banks are focusing on leveraging FinTechs in digitizing their payment business. Initially, payment innovation using FinTech was the hotbed for consumer banking but now it is gaining traction among commercial banks as well. Considering the fact that commercial clients are looking for more digital payment tools and experience, it would be futuristic for banks to thread a story with FinTechs in the payment space.

Beyond the frontiers of payments, the other area which could see momentum is small and medium enterprise (SME) lending. The SME market is mainly underserved and so easier for FinTech firms to penetrate. Hence, commercial banks need to find the right approach, so that they don't lose their share of profit to FinTechs. Recently, JP Morgan partnered with OnDeck, an online small business lender; to strengthen their SME offerings by leveraging OnDeck's credit modeling expertise.

The above mentioned are just a few business areas in which commercial banks can partner with FinTechs to stay ahead. They can also be leveraged to strengthen the banks' operational efficiency in areas such as process automation, specialized services, analytics, client onboarding, etc.

FinTech is bound to stay! How well banks use FinTechs in their business model would script their future. Commercial banks who were laggards in digitization can't afford to lose out on the FinTech opportunity as well. Hence, CXOs of these banks must devise the best plan to incorporate FinTech in their business model either via partnership or acquisition, so that commercial banks touch the finishing line in the innovation race!

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