Recent research findings, commissioned by financial services provider Fraedom, show that 77% of commercial banks “are preparing to increase fintech investment over the next three years”.
This is a good sign, as commercial banking has often lagged behind retail banking in terms of getting to grips with financial technology. The worry, according to some, is that technology will replace rather than augment personal customer relationships. The research reveals that 71% of respondents think technology within commercial banks “threatens traditional one-to-one banking”, and this is most keenly felt by shareholders (91%).
Financial technology is still too often a hard sell in specific sectors, despite the potential benefits and opportunities. This caution manifests itself as inaction, which is something Louise Beaumont of SapientRazorfish considers in her article, ‘Let’s play fantasy fintech – the Love Island special‘:
“If the banks don’t want to actively, positively and meaningfully participate in this ecosystem of services, it is entirely their call. But as the Bank of England warned, they may end up becoming a high-cost utility, or worse, nothing at all.”
Collaboration appears to be the best way forward, with banks leveraging the dynamics of a startup, while the startup navigates regulation with the help of the experienced bank.
“The research reflects what is an upward curve for fintech organisations,” says Kyle Ferguson, CEO of Fraedom, “and to continue this trend, it’s important for commercial banks to make the right choice when working with a fintech provider. By working with a trusted partner that understands the challenges of local markets, and equally how digitisation of commercial banks can support financial service offerings, this choice can often lead to further investment in the fintech industry.”
The key to a successful collaboration is in being authentic. The bank has to want to change, and there are many real-world examples of large FIs who have done just that. Backbase has worked with many big-name financial institutions who have taken the next step on the road to digital transformation, yet there are thousands of organisations yet to test their powers of innovation.
The Fraedom research reveals that 63% of respondents believe commercial banks are more cautious than retail banks when it comes to adopting new technologies. The reason cited is that some believe, “the market was settled and there was no strong competition from newcomers until now”.
This is a risky perspective, because leaving innovation till the eleventh hour is too little too late. I’ll leave the final word to Kyle Ferguson:
“The commercial banking sector must become less cautious in embracing new technologies, especially when fintech firms can support areas of their service by outsourcing operations such as commercial cards,” he says. “When technology is embraced at a faster pace, the gap between commercial and retail banks will become smaller and the collaboration between banks and fintech providers will help drive the future of finance, benefitting consumers, businesses and of course the industry as a whole.”
Photo by shutter_o, Shutterstock.com