The future of banking, at least in the traditional sense, is uncertain. This explains why (in recent years) the banking ecosystem as a whole has been undergoing a state of transformation with fintech products and services. Most traditional providers are in the process of adjusting to the realities of digitalization and the role it plays in advanced technology and increasing consumer demands.
Fintech Increases Efficiency for Banks
It has reached the point in which the success of banks with their fintech collaborations rests within the organizations who can understand each other’s strengths and weaknesses to improve the customer experience while also reducing operational costs. Additionally, what’s potentially more important will be whether these collaborations can deliver the level of personalization, speed, contextuality, and seamless delivery to defend positions against the threat of the more pronounced competition. Additionally, according to the World Fintech Report 2018, the variety of pressures legacy financial services organizations are experiencing include predictive modeling, access to unserved/underserved segments, advanced data analytics, and design-based thinking.
Banks Help Fintech Scale
It’s not just the banks that have a lot to gain from fintech. In fact, fintech also has a lot to gain from banks. What may have previously seemed like competition quickly transitioned to collaboration. According to the World Fintech Report,
“Most successful fintech firms have focused on narrow functions or segments with high friction levels or those underserved by traditional financial institutions, but have struggled to profitably scale on their own. Traditional financial institutions have a vast customer base and deep pockets, but with legacy systems holding them back.”
Most fintech organizations, stand out for their innovation mindset, agility (speed to adjust), consumer-centric perspective, and an infrastructure built for digital. These are obviously advantages that most legacy organizations don’t possess, at least not in entirety. On the flip side, most fintech organizations, especially startups, lack the ability to scale adequately due to the lack of brand recognition and trust. They also generally lack capital, knowledge of compliance and regulations and an established distribution network- each of which are inherent strengths of traditional banking organizations.
Examples of Banks Tapping into the Potential of Fintech
Royal Bank of Canada
The Royal Bank of Canada (RBC) recently acquired WayPay, a cloud-based payments fintech company that offers business clients a best-in-class solution for accounts payable automation and payment optimization. According to their reports, RBC claimed that many businesses are already planning the transition from paper cheques as manual reconciliation is a time-sensitive process prone to errors. The acquisition of WayPay added new capabilities for RBC to bring all payment types together into one platform, providing clients with a more comprehensive view of their accounts while facilitating the shift from manual, paper-based processes to digital payments.
BBVA Bank recently launched the BBVA Open Innovation Acceleration Program. This project is aimed at giving fintech start-ups a targeted helping hand on the road to success. Over the course of nine-months, those selected for the program will receive expert guidance and support from senior leaders. This program is aimed at startups that have an early stage or seed profile, and are developing fintech or fintech-related products or services. This is because by working with a big bank like BBVA, participants will be able to draw on the expertise the bank has to foster their growth in the areas needed.
Additionally, BBVA is an example of collaboration with fintechs thanks to its ‘create, acquire, invest and partner‘ strategy. During the last year, BBVA’s New Digital Business area has fostered several investments and acquisitions in the sector, as well as the creation of new startups, like Denizen, Tuyyo and Azlo.
We at SOSA support BBVA in their innovation efforts as part of a more extensive partnership with Beaz Bizkaia.
Bank of America
In mid March, 2018, Bank of America prepared a nice surprise to the citizens of Rhode-Island. The bank chose them to be the first to meet their brand new AI-powered chatbot, Erica. Erica is a virtual financial voice assistant that eases the process of keeping up on finances. Erica can check your balances, alert users of account changes, schedule appointments, and more.
Interestingly enough, the top thing customers use Erica for is to search previous transactions, especially those with popular merchants such as Amazon, Target, Walmart, Costco and Uber. Users can “…go into Erica and say, ‘Show me all my Amazon transactions,’“ said Michelle Moore, the then-Head of Digital Banking at Bank of America. “It will tell you all your credit and debit card transactions, and if you wrote a check, that would show there, too.”
In a nutshell, fintech helps make banks resilient, and the barriers to entry are now lower than ever. In an effort to stay ahead of the curve, operate with greater efficiency, and to protect market share- well-respected and established institutions that haven’t already delved into how fintech innovations can help them must prepare themselves to make the change as soon as possible to help foster growth.