FinTech In Banking: Unleashing Its Potential

FinTech In Banking: Unleashing Its Potential

Banks have many innovative ideas, but they often struggle to realize them effectively mainly because of the complex nature of their organizations.

The R3 Blockchain Consortium Gets A New Member
WEF: Tech Companies Disrupt Banks
Alibaba`s Ant Financial To Expand In Indonesia

Financial technology or FinTech is the new hype in the financial world. It has attracted billions of investments last year, turning into a serious financial player that may disrupt traditional banking. But is it really happening?

EY, a global leader in assurance, tax, transaction and advisory services, has conducted a research analysing 45 major global banks. In their executive summary, the company wrote: “while all banks are engaged with FinTechs one way or another, only around a quarter are extensively engaged due to barriers to collaboration with FinTechs“.  Therefore, the report sets out to explore the main barriers to effective collaboration and how banks and FinTechs could deal with them. In particular, you may have a look at how banks should act to improve their relationship with FinTechs:

What to do? Actions for banks

According to EY, banks have many innovative ideas, but they often struggle to realize them effectively mainly because of the complexity, scale and siloed nature of their organizations. Some of the main recommendations that may improve the situation are listed below:

  • Develop a FinTech framework that rewards innovation

When it comes to innovative projects, many banks are wary of taking investment risks, while requiring extended period of time to implement the new things. Therefore, banks need to define guidelines within a FinTech strategy, as EY`s analysis stated.

“We recommend that banks define their innovation framework and process clearly, then share relevant aspects with the firms they seek to engage with.”, as EY added.

“This includes sources of external and internal influence, the end-to-end process, decision-makers and acceptance criteria, and the enablers to support the framework.”

  • Choose an innovation operating model that connects new ideas to business needs

As EY wrote in their analysis, there are typically three types of innovation operating models that are in use today: centralized, decentralized and hybrid. In a centralized one, a chief innovtion (or digital) officer oversees a central innovation team that works on the business solutions.

“When the centralized model works well, FinTechs can benefit from the support and structure it provides. Conversely, decision cycles may end up taking longer, with more time being spent before a business sponsor is found.”, stated EY.

On the other hand, the decentralized model means that each business unit has its own governance processes. In turn, this helps those familiar with the business to identify real problems, while innovators can possibly come up with useful solutions. However, the disadvantages can be duplication of effort, proliferation of local processes and lack of consistency.

As the analysis claimed, the third model named “the hybrid model” is the ideal solution. EY expressed an opinion that a defined, distinct innovation team helps to set the right tone and message, and that innovation needs clear leadership.

  • Asess the pros and cons of your FinTech engagement strategies

EY made a point that there is no single answer as to how to engage FinTechs. Still, banks are often turning to FinTechs when they consider integrating innovative solutions as part of their overall strategies.

“Where banks turn to FinTechs to help drive innovation, our research shows that collaboration is the preferred engagement strategy”., as EY wrote.

Also, banks are said to participate in accelerators, incubators and training programs. Thus, they can get access to talent and technology without making a major investment in FinTech companies. As EY explained, banks should carefully evaluate their engagement models and how they may support their long-term growth strategy.

  • Carefully manage talent and architectural change

According to the analysis, transformational architectural change requires a multilayer commitment and could potentially diverge from the long-term strategic vision.

“We believe that a component-based architecture, resembling a set of interoperable building blocks, will drive innovation and next-generation efficiency.”, as the analysis advised.

EY added that the industry is learning to collaborate better, but the speed at which standards are emerging could be quicker.

Clearly, the financial ecosystem is changing. It is to be seen how banks will deal with the challenges, while making use of the opportunities.

The full analysis is availabe at the following link.