A Special Feature Interview with Vipin Kalra, Chief Executive Officer, BankBazaar International – former Visa executive for Singapore and Australia. Banks will continue to face a host of strategic, operational, compliance and security risks in 2018. In terms of digital banking, as technology continues to evolve, current digital banking solutions will run the risk of becoming redundant if they do not adapt and cater to the changing customer demands. Banks will have to go beyond offering mobile banking applications as consumers turn to digital solutions for more advanced services such as financial advisory.
What can incumbent financial institutions learn from Fintechs?
Many incumbent financial institutions (FIs) have been around for decades, if not centuries. Over the years, they have worked on the same business models with little competition from outside. With the digital and FinTech revolution shaking up the financial services industry, incumbent FIs are recognizing the need for change.
The key areas where they can learn from FinTech firms are:
1) Customer-centricity: Historically, the focus for large FIs was largely sales and profit-driven, with little importance given to the customer needs and experience. As customer behaviour changes and loyalty declines, FIs need to put customer experience at the heart of their offering. When it comes to FinTech firms, most are born from a customer need and have built their business models around the customer. This has allowed them to fill in the gaps in traditional banking models and gain customer interest.
2) Simplify processes: Incumbent institutions have built vast and complex structures with a number of individual systems, departmental sales and data management issues. As such, introducing new business models and adopting new technologies is riddled with challenges. On the other hand, FinTech firms have been able to simplify the delivery of financial services through digital platforms, making it easier for them to move fast and adopt emerging technology while providing a better customer experience. For FIs to compete, digital initiatives need to move beyond the front-office, they must automate internal processes and build digital capabilities at the core of their operations.
How do you ensure incumbent-fintech partners stay on course, and deliver on the collaboration?
In order for incumbent-FinTech partnerships to stay on course, it is important to have an aligned vision and strategy.
FIs need to view Fintech organisations as partners and not just third-party vendors. This means creating an environment for open communication and sharing resources to jointly acquire and serve customers. One of the cornerstones of a successful collaboration is opening up of APIs, allowing partners to seamlessly integrate their offerings and get access to relevant customer data.
FIs and FinTech both have core capabilities – for FIs it is the years of experience, large customer base and regulatory support; for FinTech firms it is their understanding of the customer and digital expertise. By playing to their strengths and working together to plug in the gaps, incumbents and FinTech firms can create a sustainable and successful partnership model.
The when and how incumbent-fintech collaborations fail.
Incumbent-FinTech collaborations can fail for a number of reasons. For one, the two organizations may not have the right fit in terms of culture and values, leading to friction in the collaboration. FIs must create a culture that supports innovation and is open to change across all levels of the organization. Similarly, FinTech firms must ensure they have an understanding of the industry and a sustainable business model that can address the needs of the FIs.
Collaborations can also fail if the expected outcomes are not discussed and agreed upon beforehand. It is necessary to discuss the KPIs, how performance will be measured and the payment structure to avoid any points of contention that could ultimately derail the partnership.
Finally, regulation can be another reason behind unsuccessful partnerships. With rapid advances in technology, regulations may change at any time, making it difficult for FIs to continue the collaboration.
"Irrespective of how it’s done, having a measured approach is important. Scaling prematurely or too fast can spell doom."
Digital banking risks to look out for in 2018.
Banks will continue to face a host of strategic, operational, compliance and security risks in 2018. In terms of digital banking, as technology continues to evolve, current digital banking solutions will run the risk of becoming redundant if they do not adapt and cater to the changing customer demands. Banks will have to go beyond offering mobile banking applications as consumers turn to digital solutions for more advanced services such as financial advisory.
The ubiquity of technology will also leave banks more vulnerable to cybersecurity risks. Attacks are becoming more sophisticated and given the sensitivity of financial data, it will be imperative for banks to build a security framework that can withhold breaches.
How will regulation impact Fintech commercialization?
A supportive regulatory framework can be a key enabler for FinTech commercialization. As players in the financial services ecosystem, FinTech organizations need to function in accordance with regulations, even if they are not directly governed by them. Especially so when it comes to building partnerships with FIs, which is one of the main routes to commercialization. Regulatory restrictions can make it hard for banks to provide customer data to partners such as FinTech firms. In addition, the regulatory framework can limit the products and services FIs are able to work with.
Conversely, an open regulatory framework which promotes innovation can allow FinTech organizations to build better solutions and work with FIs to meet customer needs, thereby making FinTech more commercially viable.
How can Fintechs solve the scalability issue?
Scalability can be elusive for many organisations as they grow. It is especially hard for FinTech firms as they have to compete against bigger FIs with heavy pockets. Before attempting to scale the business, it is important to ensure that one has a solution that is truly addressing a need in the market and work out any kinks in the business model.
Ideally, FinTech firms should look at building scalability into the business model from the very beginning rather than trying to work it in at a later stage. This involves building low-cost, replicable platforms, and creating automated internal processes. FinTech firms can also explore working with a network of partners and advisors who can share resources and expertise, and consider investing in cost-effective digital marketing capabilities to grow their customer base.
Irrespective of how it’s done, having a measured approach is important. Scaling prematurely or too fast can spell doom. FinTech firms must have enough runway or committed investors to back up their efforts.