The platformification of banking

Strategy & Architecture

Why the fintech revolution is shaking up the banking industry

The fintech revolution has until now merely scraped the surface of its potential, but fintech firms will soon have considerable impact on the banking landscape, which is good news for customers. It’s no longer a matter of if, but when, banking will be reinvented as major shifts in competition, technology, customer behaviours and regulations are going to shake up the industry. A new generation of startups and entrepreneurs are changing the rules of the game, implementing new technologies and work practices, and serving mobile-oriented customers better than traditional banks are presently able to.

Fintech firms will soon have considerable impact on the banking landscape, which is good news for customers.

The financial sector’s high attention to fintech is due to a number of reasons: startups are gaining traction around the globe, a number of key digital players have introduced financial solutions that quickly have gained scale and recognition, and new technologies such as blockchain are emerging with the potential to transform the industry in multiple ways. In the near future, banking firms will play catch-up to avoid fading into irrelevance. As consumer expectations mount and margins remain slim, the risk of being left behind or consolidated rises.

The chasm between hype and production-level implementation is now beginning to close. As banks start to implement at scale technologies such as biometrics, advanced analytics and real-time mobile payments—with more and more consumers starting to adopt— the fintech revolution will gain momentum. Consumer habits take time to change and requires overcoming inertia why the revolution may not take place over night, but we’ll definitely see significant advancement in the coming year.

How do fintech startups measure up against incumbent banks?

Banking firms have substantial customer bases that fintech businesses lack. In addition, they benefit from stability, trust, access to large amounts of capital and experience handling regulations and compliance requirements. On the other hand, banks are more restricted by legacy systems that stifle their ability to innovate and be agile. They’re also impeded by difficulties in recruiting the required technological know-how to improve products compared to fintech firms, as digital talents often want to work in creative, faced-paced environments with like-minded peers and flat hierarchical structures – something many traditional large organisations can’t offer.

There will be less talk about banks versus startups and more about collaboration.

Due to these complementary needs, Digital Banking Report predicts that the sector in the year ahead will come to realise that fintech firms are better as partners than competitors, and that there will be less talk about banks versus startups and more about collaboration. This realisation will mark the beginning of the platformification of banking, where existing banks and startups embark on a strategic move towards becoming banking platforms—similar to how Amazon is a retail platform.

Recent partnerships between traditional financial groups and fintech firms—such as those of JP Morgan Chase with OnDeck or ING with Kabbage—show that banks recognise the value of the solutions these startups have developed, which will inspire more collaborations in the future. Smart banks will team up with fintech companies to integrate their services and deliver new offerings that are superior in terms of cost, performance, speed and convenience.

The API economy is coming to banking

To support this integration, a significant number of banks will open up their APIs to the fintech community, which means we will see the rise of the API economy also reaching banking. Nevertheless, it’s uncertain if adding an API layer will be enough for incumbents to deliver the flexibility and innovation that interconnecting startups can bring. It’s therefore likely that as APIs become the centre of competition in services, there will be a surge in acquisitions and partnerships. We can expect to see a growing number of alliances established around APIs and white label solutions—enabling any business with good customer relations to offer solutions to their market.

A significant number of banks will open up their APIs to the fintech community.

Overall, the fintech space will most certainly see intensified rationalisation and consolidation. Established fintech players will continue to grow—potentially acquiring smaller startups—striving to provide a more comprehensive service experience to users by leveraging their advances in delivering differentiated experiences and cultivating trust. As fintech businesses seek to accelerate their growth and banks attempt to narrow their innovation gap by integrating talent, improving their value propositions and user experience, and getting to market faster than their legacy systems permit—incumbents will either partner with fintech startups or acquire them. Whether these acquisitions result in companies kept as standalone entities or are incorporated into the legacy organisation remains to be seen.

About the author

Jesper Nordström is a digital strategist, emerging technology analyst and head of group marketing at 3gamma. With a cross-disciplinary background, he has extensive experience working at the intersection between business, IT and design – helping companies gain competitive edge by leveraging digital technologies. Areas of expertise include digital transformation, innovation strategy and emerging technologies. Jesper holds dual degrees in engineering and business management.

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