Collaboration rather than competition is driving the Australian fintech sector, at least in part because both larger incumbents and startups are being forced to compromise.
According to a report released on Monday by The Australian Digital Transformation Lab, a joint venture between the University of Sydney Business School and Capgemini, the emerging fintech industry and Australia’s traditional banking sector increasingly see the sense in working together.
This is partly being driven by the looming threat to incumbents posed by so called ‘Big Tech’ - companies such as Google, Apple and Amazon. It is therefore critical, the report stated, for banks and fintechs to consider collaboration as part of an integrated strategy.
“We commonly think of fintech as small, digitally-native companies that fundamentally change the financial services market, disrupting and displacing incumbents. But what’s becoming clear is that it’s difficult for fintech firms to prove themselves as a viable option for everyday consumers despite the innovation in services,” said the University of Sydney Business School’s Professor Kai Riemer.
“That’s not to say incumbents are able to sit back and enjoy their current status – customers are increasingly exposed to new Fintech options that offer convenient, engaging services. The future will lie in exploring collaboration.”
According to the report, the increased pace of innovation tied with venture capital funding has led to ongoing change in the financial services market with plenty of moving parts. It confirmed the view that entrenched customer trust has helped banks and other traditional institutions maintain their dominant position, but that younger tech-savvy Gen Y customers are increasingly willing to go elsewhere for their financial service’s needs.
While fintechs have successfully managed to bring to the market customer centric services and products, traditional firms still hold an advantage in the area of trust, specifically the perception of stability, security, and safety.
Apple, Amazon, Google
This is particularly true when it comes to long term investments like mortgages – customers place their trust in traditional firms for their stability. The report found that if fintechs want to overcome this hurdle and unlock a larger segment of the market and scale-up, they should consider partnering with incumbents.
“Banks and fintechs should adopt a strategic approach and collaborate throughout the innovation process, leveraging each other’s’ strengths to deliver maximum benefits from digital initiatives,” said Nicolas Boussand, director of digital customer experience, Capgemini in Australia and New Zealand.
The report, The Fintech Advantage, also concluded that, with substantial investment capacity, incumbents have the opportunity to become even more price competitive and relevant by taking the lead in creating a meaningful digital ecosystem that fuels innovation.
“Fintechs need help with scaling-up, while incumbents can benefit from learning how to harness digital technology. This shift requires an open mindset from the banks and fintechs to enable agility and collaboration, as a result unleashing the fintech advantage driven by customer centricity.”
The report further warned that fintech is not the only disruptive force brought on by advances in digital technology.
“The fast-approaching threat on the international horizon is ‘BigTech’ – companies such as Apple, Amazon and Google who have not traditionally been involved in the financial services market but own the resources to do so,” it stated.
“These firms are poised to become major players. With access to customer data, established consumer infrastructure such as mobile phones and payment systems, as well as strong brand reputations, both fintech and incumbents would be wise to consider what the entry of ‘BigTech’ into the financial services market in Australia will mean for current and planned partnerships and service offerings.
“Staying ahead in the key areas of price, convenience, access, choice, community, and trust requires harnessing digital technology and capabilities by keeping the customer at the centre. Strategic partnerships, built with appropriate structures and timelines in mind, can help both incumbents and fintechs to continue to evolve and respond to a rapidly changing financial services landscape in Australia and beyond.”