FinTech the Champion of “Banking” Services

Banking Services: Cashless or LessCash are terms that are often interchanged and,  in most cases, create confusion amongst consumers and, to some extent, new startups. If we are to consider the Asia-Pacific region, where digital disruption is at the top of the banking sector’s agenda, The question that arises is: will the banks’ response to the rise of FinTech be effective? To answer this billion-dollar question, there is a need for analysis from the different aspects and perspectives of bankers, consumers, and FinTech service providers.

Funding/Capital as a Raw Material

One thing is for sure: securing either funding or capital as cheap raw material will not last for long, and with time, this raw material will gain or attain its actual position, and then it will become a nightmare for millions of start-up FinTechs that rely purely on crowdfunding and block chains. Marketplace lenders (MPLs) are deemed unlikely to pose a threat to banks in the mass market. This is not an approach likely to fend off MPLs, which are the real threat of wide-scale digital disruption. Instead, banks need to take a step back and interrogate their innovation strategy from the ground up.

But despite the proclamations of some visionary FinTech founders, banks aren’t disappearing anytime soon. The engines under the hood of big banks — the compliance and money-transfer systems — are simply too difficult for any start-up to replace, which is why tech plays like Apple Pay are still built on top of existing bank systems and payment rails.

To maintain the dominance they’ve enjoyed up to this point, however, banks need a radical redesign of their customer-facing assets. If banks fail to overhaul their exteriors to offer a personalized, best-in-class product experience, they will be relegated to supplying the engine for sleeker-looking tech companies in 10 years.

Banks and FinTech

Digitalization has come in overwhelming waves, driven by the growth of e-commerce—first in the B2C and now the B2B space—and the proliferation of smart devices. With it has come continuous innovation to meet the demand for technologies that drive efficiency, lower transaction costs, and boost convenience. Banking giants have deemed this a harsh blow to the credibility of profitable startups. According to the World Economic Forum, investment in the FinTech sector is ascending at incredible rates, from $1.8 billion in 2010 to $19 billion (source: Google search engine) last year.

Few comments could be perceived as the bitter outburst of a market rival, yet evidence to the contrary is abundant. There are many reasons to be skeptical about the long-term survival of MPL business models and their thoughts around the Cashless or LessCash economy. In order to achieve a boom in business, consumer, and micropayment transactions, and one is to lead, who will win FinTech, Bank, or “BanTech”? (Where banks will adopt FinTech work styles, move with speed as needed by the market, and rise above their 100-year-old mindset.)

If you remember my post from March 26, 2016, “FinTech: The BaaP and BaaS Boomer,” where I mentioned banking can come from any financial service provider and not just banks, Now if we look at the same phenomenon from a different angle, i.e., banks now offer their platform to all new start-ups whilst enforcing tight regulations and security frameworks, a situation that will lead to THE AWESOME/WOW MOMENTS

BaaP – Banking as a Platform “and “BaaS – Banking as a Service

A true presentation of “BaaP (Banking as a Platform) “and “BaaS (Banking as a Service) under Banking Hall will bring all together a new wonder in customer experience. But merely jumping on the FinTech bandwagon — or even building a successful FinTech company — will not create a successful financial institution, nor will it drive consumers to banks who normally shy away from banks due to either exorbitant charges or stringent KYC requirements.

Banks don’t just need to improve the customer experience; they also need to stay ahead of the innovation game and ensure financial inclusion, or finclusion, is on their minds, hearts, and voices from top to bottom, and drive it as a basic human right thereafter.

Incubators are good for customer and shareholder PR, but will they deliver actual innovation or just more and more apps and fancy, colorful papers? There is a need for banks to adopt a logical approach to achieving clear differentiation with their FinTech investments. Currently, significant spending on incubators and accelerators appears to be either adding to the ever-expanding pool of FinTechs or being channeled towards funding similar projects — many of them focused on developing apps.

I heard a very interesting statement during my Kenya visit in one of the conferences where somebody said a very bold statement on stage during a round table discussion, which was “FinTech is not spelled as A. P. P.” Banks are hiring world-class marketing consultants, but are incumbents backing up the message with real change in culture and product innovation? Most likely not.

Do banks really want to take on the massive risks associated with fledgling startups? The answer is very clear: no, not at all. Do they have clarity around the development and price points that make a startup a commercially viable acquisition target? Most likely yes, as they have very bright, young, and well-experienced professionals who got on board with the fresh blood regime.

Mobile Money – A Fantastic Form of Banking

One of these areas that has seen radical change has been payments, with innovators such as PayPal, EcoCash, M-Pesa, Alipay, Samsung Pay (all of them came out of the payment industry or domain with very little or no experience in said domain but doing wonders and making the world think again) and many more revolutionizing the way we expect to make and receive (instant) payments for products and services.

Big banks will continue to leverage their large hordes of cash and low cost of capital to pay a premium to acquire and utilize FinTech solutions and exploit the banks’ brands, marketing expertise, and distribution capabilities to package and deliver solutions to customers. In recent years, the payments arena has been characterized by the rapid ascension and widespread adoption of novel concepts, which include investments, financial management, and even some virtual reality, or what we call “Finovate. These fall into different avenues of change: streamlining payments or integrating billing, mobile payments, security developments, cryptocurrencies, and peer-to-peer transfers.

Such innovations continue to make payments increasingly cashless and invisible while enabling data-driven engagement platforms for customers. While enjoying the FinTech momentum, banks need a road map to look at why they’re innovating and what requires innovation.

Why are FinTech startups different from other tech startups? Many people would answer regulations, and that’s certainly part of the story. Banks want FinTech to be regulated to level the playing field whilst FinTech companies want easier regulation to collaborate with banks.

Innovations and Risks

Managing new digital innovations introduces a risk of fading out from market and solution is clear Innovation, Collaborations (Creating new opportunities through strategic & networked alliance), and Leaders as resources and Investments.

• Innovation – Is it wrong to say “Banks have been caught asleep on the wheel in the Digital Age”? Most likely not, hence the birth of FinTech to the responsibility of building the online/CashLess/Mobile payment services that are top of mind for consumers today. On mobile, more people default to social media, MNO’s mobile payment services, etc., to transfer money to families and friends rather than a bank app. Open innovation is at the heart of the digital revolution but the bank said: “No way i.e do it my way”. FinTech’s took this forward and got it, engaging as an external technology solutions provider with immense knowledge. Cheap capital came as free raw material for FinTech’s and resources which were waiting for this kind of golden opportunity just jumped on board.

• Collaboration – Creating new opportunities through strategic and network alliances, traditionally financial services incumbents have partnered with others in their own industry—especially to share processes or services considered “non-core,” which help all collaborators reduce their costs or create new market opportunities. Without serious threats of disruption, most banks have focused on consolidating to drive down costs and cross-sell services, placing customer-facing product experience on the back burner. Yet collaboration will need to go a step further in the future, to build ties with those in different industries, outlooks and identify new ways to generate value. Collaboration between incumbents and new players will be essential to fully comprehend the effects (both positive and negative) of technological developments on the industry risk profile.

• Leaders as Resources – To be a great leader, innovator and dream seller one needs to be an expert at these first. Because they are what will make them a world-class consultant, not so much the other. Basically, don’t buy the lie that is common that states the broad certification path is the best path to success – take the road less travelled.
  1. People Skills – Listening, Stakeholder Management, Influence, Persuasion, Inspiring
  2. Soft Skills – Listening, Communication in all forms, Facilitation, Storytelling
  3. Information Analysis & Synthesis Skills
  4. Superlative Finance & Economics Skills

• Investment. – How financial technology firms and digital ecosystems can leverage banks’ core competencies through equal partnerships, to innovate and grow in the B2B, B2C and C2C space; Venture investing has always been at the heart of the start-up innovation model. Some banks will strategically choose to invest heavily in building their own tech solutions but speed gets into a show stopper. Though, it will make sense to leverage their infrastructure, deep pockets and formidable sales and marketing force while using start-ups as their R&D arm. Once the start-up is user tested and approved, these banks will acquire or partner, then expand those services through the bank’s consumer base. Now, more than ever, established financial services firms are taking this route to try and generate innovation for their business.

FinTech – Banks Lunch Eater

FinTech’s also known as banks lunch-eaters. FinTech services are a really new phenomenon that is fundamentally different from the previous 4000 years of banking. The forces moving this revolution ahead are also known to almost every single bank which are consumer needs, speed, less complex KYC and customer demand “Give me what I want” and “Stop pushing what you have and repainted for me”.

Identifying the services as hotspots are daily FinTech activity. Which areas of banking do FinTech covers as on date; most likely retail banking. Most interesting scenarios to observe is to see how do major global banks reacting to this (Like HSBC, Citi, Santander and others). To see how these major institutions are reacting to FinTech. We need to learn about cooperative-competitive techniques and take a specific look at innovation labs and dedicated FinTech VC arms run by major banks.

Food for thought – FinTech community incubators, boot camps, accelerators, co-working, and location-independence. What are the risks faced and posed by FinTech companies?  Analyses risks and discuss why FinTech companies are thought to be so much more successful in innovation than banks. Who are their clients?  The financial needs of the Millennials, how it differs from the needs of their parents.

Discuss the opportunities and threats posed by this new generation of clients. Take a look at “omnichannel” banking and how it differs from the “multichannel” approach being popular earlier. The definition of FinTech in your mind and what’s available on the internet compare to some real-time startup. The reasons behind the rise of FinTech. The geographic centres of FinTech. FinTech Startups vs Bricks & Mortar Banks. How did the 2008/2009 crisis fuel FinTech?. Where will the revolution be in five years? The FinTech Jargon: Bootcamps, Accelerators, Incubators. Location-independent communities: how do they cooperate? How are FinTech companies regulated now? How will FinTech companies be regulated in the future? How is FinTech doing in Europe, Asia & Africa?

Innovative and nimble new players – FinTechs and digital ecosystems – have entered the payments game, creating increased competition for already-pressured banks. But without access to a client base, the expertise to navigate the regulations and licensing of the finance industry, client confidence, and robust global infrastructure, these new entrants can only go so far on their own.

Points to Note:

All credits if any remains on the original contributor only. We have covered all basics around data models or the importance of quality data and training data. In the next upcoming post will talk about implementation, usage and practice experience for markets.

Books + Other readings Referred

• Research through open internet, news portals, white papers and imparted knowledge via live conferences & lectures.
• Lab and hands-on experience of  @AILabPage (Self-taught learners group) members.

Feedback & Further Question

Do you have any questions about AI, Machine Learning, Telecom billing/charging, Data Science or Big Data Analytics? Leave a question in a comment section or ask via email. Will try best to answer it.

Conclusion – If an organisation or bank or company can make use of Innovation, Collaborations and Investments then a very strong and positive disruption comes as a gift and award. Disruption in payments will continue, with ongoing innovation shaping customer behaviours, business models and the structure of the industry. FinTech goes into opening up their own organisation’s own intellectual property, assets and expertise to outside innovators to help generate new ideas, change organisational culture, identify and attract new use cases, and discover new areas for growth.