In a traditional operating model, banks operate in a vertically integrated value chain that spans accounts (CASA), payments, loans, cards, and investments. The operating cost remains relatively fixed, though banks can outsource some of the components. The traditional banking model has become unsustainable under the impending threat of disintermediation. Using rapid deployment of mobile applications, fintech companies can avoid overheads needed to maintain infrastructure and resource base, allowing them to spin off financial products and services at highly competitive rates. Additionally, fintechs are agile in innovation leveraging the latest digital tools to launch products and services not yet offered by banks. Through social networks and app stores fintechs are able to tap customers across demographics and enroll them quickly and easily into personalized products and services.
The banks, on the other hand, have competencies and expertise in providing core functionalities like security, authentication, and statutory compliance. As a result, collaboration of banks and fintechs enable customers to enjoy a differentiated, personalized banking experience under the protected shield of the regulated banking industry. Traditional banks, on the other hand, can use this opportunity to open up new revenue streams while maintaining their relevance in this era of digital disruption. Customers are in the process of embracing this new model for better experience and lower cost.
FinTechs provide a gamut of API enabled services such as customer onboarding, account overview, loans and overdraft facilities, mobile and online payment services, etc,. This business model will not only benefit traditional banks, but also offer a strong platform to other non – banking sectors such as insurance, telcos, and retail to capitalize on their customer base by offering specific and pointed relevant offerings.
Some of the partnerships already developed between fintechs and banks/financial services are:
1. A leading USA based online trading company joined hands with an online remittance company to provide a more complete picture of its customers’ financial holdings as part of its wealth management service.
2. A well-known German online bank collaborated with a mobile PoS to offer a plethora of services such as brokerage, metals trading, peer-to-peer loan, crowd sourcing, etc. from a single portal
3. An EU based online bank partnered with an on-line lending company to lend its funds through the platform already built by the lending company
4. A retail giant in UK collaborated with a traditional major bank in EU to roll out its financial offerings
Many traditional banks have already started the journey to build an open API platform on the cloud that will help them to expose appropriate business data to customers and third parties to fulfill regulatory needs as well as to achieve a competitive edge.
However, as competition and customer behavior is evolving, it is imperative for banks to collaborate with fintech companies leveraging this API platform. Fintechs will have more opportunity to foster innovation as they act as aggregator of data belonging to different banks. Customers will benefit immediately by having access to new products and services (result of innovation) alongside a bank’s core offering.
Have you geared up for this collaborative journey? Is your company ready for the big digital transformation? Explore API-led platforms that connect people and processes with enterprise assets and the overarching technology infrastructure to deliver superior customer experiences. To know more read Enterprise Insights and Cloud Technologies.