Alliance of FinTech and Financial Institutions

Millennial/Next generation customers want to make their financial decisions (payment, financial support and flexible repayment) on their purchases (electronics, holiday, vehicle, white goods, apparels, property etc. & purchase within country and/or from outside country) at that immediate moment.

To meet the demand – Financial Institutions are investing heavily in technologies that directly impact the speed of decision making and hence enable customer retention, customer attraction and more importantly the revenue growth. Also, it is evident in the financial market; to prove their might, traditional financial institutions are gearing up to take up the challenge thrown by the FinTech companies prowling into the traditional business of financial institutions.

Unlike a traditional software product company that focuses on niche domain to support and solve the business problems with a technology solution; the FinTech companies now are pushed to play the role of not only technology evangelists but also compelled to look into business opportunities that did not exist in the traditional realm. Thus, FinTech companies are evolving to focus on developing solutions that unravel new business models for financial institutions.

As per BCG report, Banks that blend FinTech innovations into their business and operating models pose a greater threat to established players than FinTechs themselves. FinTech capabilities can help banks address critical gaps in their portfolio, reach underserved segments, and deliver a high-touch, lower-cost client experience. Banks that see FinTechs as partners, not foes, will have a powerful marketplace advantage.

Below are the key technology focuses of FinTech that support the strategies of financial institutions

Digital Payment platform – Platform that enables Faster, Secure and real time payments.

• As per BCG analysis 2016 – 40% of fintech investment by corporate banking sector and 20% of fintech investment by consumer banking sector in payments

Collaborative platform – connect customer, vendor and financial institutions to collaborate to bring in a new revenue stream for Financial institution

• As per PWC Global FinTech Survey 2017 report 60% of financial institutions believe that customers are using fintech solutions for personal finance and loans

Digital Money platform – support the Financial inclusions – offline payments, enabling traditional banking barriers

• As per BCG analysis 2017 – emerging markets governments are pushing to move from cash transactions to Digital cash – as a result, from 2011 through 2014, account penetration increased from 35% to 53% in India and from 27% to 31% in the Philippines.
• As per PWC Global FinTech Survey 2017 report 84% of financial institutions believe that customers are using fintech payment solutions

Artificial Intelligence enabled Automation – Automate the customer/vendor touch points through bots – chat based and voice based.

• As per PWC Global FinTech Survey 2017 report 30% of large Financial Institutions are investing in Artificial Intelligence (AI)

Block chain Solution – Platform that enables the cross border payments etc.

• As per BCG analysis 2016 – 7% of fintech investment by capital markets (trade finance) sector and 5% of fintech investment by consumer banking sector in blockchain
• As per PWC Global FinTech Survey 2017 report 77% expect to adopt blockchain as part of an in production system or process by 2020

Financial institutions major challenge is to predict on the technology sustainability (adaption by customers, ease of use) and speed in which they deliver the business benefits. Thus, FinTech companies need to gain the financial institutions confidence by creating demonstrable business cases in their solutions to prove the tangible benefits.

FinTech companies are also bringing out solutions that open up new business model and help customers to remove the financial institutions’ dependency

Peer to peer platforms – platform that enables financial activities like lending within a group

• As per BCG analysis 2016 – 10% of fintech investment by corporate banking sector and 35% of fintech investment by consumer banking sector in Lending

Ease of use platforms – platform that enables to (1) decide on a best loan offer by (a) comparing multiple options from financial institutions(b) negotiating, at point of sale in few minutes (2) make payments from debit, credit cards in a touch, for e.g. payments through e-wallets, NFC, mobile

• As per PWC Global FinTech Survey 2017 report 84% of financial institutions believe that customers are using fintech payment solutions
• As per BCG analysis 2016 – estimated annual growth in the value of bank-card payments in emerging markets from 2015 through 2025 is estimated to be almost double the rate in mature markets (11% versus 6%).

Customers are attracted to any solution that eliminates the burdensome processes created by financial institutions to complete their finance transactions in last decades. In response, FinTech companies are focusing on solutions that help customers to make their financial decisions in self service mode through web, mobile applications – ANYWHERE, ANYTIME philosophy.

Financial institutions and Fintech has to collaborate by sharing the expertise to identify the new way to generate value to each other.