FinTech vs Bank Interaction & The Way Forward

Since the first examples of financial technology companies and business models, we are observing a considerable change in financial services industry and banking in particular. It basically stemmed from the post financial crisis environment and the improvements in the technology infrastructure, which helped move the needle to new and disruptive business models.

Payment was the first area where we witnessed active development of new business models. It covered every part of the payment model (including issuing and acquiring parts) and the technology and business models have been developed by a number of companies in different industries including start-ups, financial services companies, high-tech companies and telco players. The examples we are seeing today (including digital wallets, merchant payment solutions, and mobile payment solutions) are all coming from the work in the payment area. However, the progress of financial technology was not just limited to this area only. It then quickly expanded to adjacent domains (e.g. alternative lending, digital banking services, wealth management and financial planning) either through experimental models or with full-fledged business models aiming to compete with established players.

When we look at the market today, we are seeing a wide array of companies and business models ranging from payment service providers to digital banks and wealth management companies. Some of them are coming from start-up roots and earned their place in the market by positioning their products and services (e.g. Klarna). Some others positioned themselves as a diversification arm of established banks and telco players or got acquired and continued their activities inside their well-established parent companies. Some players chose to build partnerships with large banks, which helped improving bank’s capabilities while reaching a vast customer base. It is also not uncommon to see collaboration among leading banks and high-tech players such as the collaboration between Barclays and Apple Pay. We are also seeing the development of the full digital banking space including players like Atom Bank, Tandem and Fidor. As they are completing the requirements in their respective markets, we are expecting to see more players in the pure digital banking space.

If we look at the situation from established banks’ lenses, they are coming up with a set of tools to counter the developments in the financial technology space. As the measures are mostly related with the bank’s strategy and the position in the market, these measures and strategies mostly revolve around a number of approaches including collaborations, investments, internal developments and direct acquisitions. When we look at the activities of large banks, they usually apply a combination of these approaches to develop their know-how and strengthen their position in the market.

Our aim in this short article is not to list down all the market segments and the companies we have observed in recent years. It seems like all the activities and the business models developed and tested so far are bringing us to a juncture where the structure and format of banking activities are going to go through some significant changes in future years. The developments so far represent the first phase of the financial technology space where the technology and the corresponding business models have been developed, introduced and tested in the market (some of them flourished and some others became “lessons learned”). In the following phase, questions like “how the interaction with the banking system will be defined” and “how the services will be designed and provided to the end customer” are expected to be at the forefront of developments. To open up this a bit more, we might expand the argument with a set of questions.

• What will be the next act of financial technology players? Are they going to establish a new industry or are they going to become capability augmentations for the banking industry players?
• What will be the role of open banking? As the open banking standards evolve, what will be the positioning of traditional banking industry players vs financial technology players?
• Related with the open banking topic above, is banking continue to stay as a one-stop shop business or can we expect to see players who act as pure distribution platform or banking products platform?
• From banking industry perspective, how can we define the future talent base? Considering approaches like collaboration and acquisition, are these the way to develop the talent base or is there a need to approach this topic in a more structured way?
• As the bedrock of many of the aforementioned questions, what are the potential disruptions in the market? Is it going to be blockchain, artificial intelligence, process automation, analytics or a combination of these?

It is possible to expand this question set with additional thought-provoking questions. The thing is we strongly need to focus on “where the ball is heading” aspect of this topic. The way forward for this industry contains many exciting topics and developments for the future.

The views expressed in this article are the views of the author only. This article provides general information and point of view, and should not be considered as professional advice.