Collaboration not competition: banks find new partners
16 August 2016
The mantra of policymakers considering Britain’s troubled banking sector has for years been that competition represents the best hope of a better deal for customers. The emergence of a thriving FinTech sector, however, turns that idea on its head – for many of these firms offer not so much competition but an opportunity to collaborate for the common good of all stakeholders.
In fact, the idea of partnership is not so new. Think of banking-wide solutions in costly areas of business such as cheque clearance and payments, for example. For those banks now prepared once more to be imaginative about who their collaborators will be in the future, there will be many gains to make.
Many banks already recognise this and are taking steps accordingly. One recent PwC survey found that 42% of incumbent firms are engaging in FinTech in some way: of those incumbents, only a third were focused on in-house development of new technologies or straightforward acquisition of FinTech companies - the rest involves collaboration with third parties.
Not that those third parties have to be FinTechs. With banking challengers emerging from all directions the opportunities for collaboration are multiplying.
There are good reasons for these challengers to work with incumbent banks, rather than to seek to take their lunch. Some are offering innovative technologies and services to the industry, rather than aiming to replace it. Others are looking to scale more quickly than rivals in their particular niches. And many challengers must overcome issues such as cash flow and regulatory requirements.
Working together with these willing partners in an evolved banking ecosystem, banks can finally begin to move past the difficulties of recent years. For one thing, the shift towards greater commonality of processing and operations represents an opportunity to drive far greater cost efficiencies than any bank could achieve by itself. But collaboration will also enable banks to develop new products and services – to reach out to underserved customers and communities. In doing so, they may start to repair lost trust and engagement.
These are valuable prizes that may seem tantalisingly out of reach right now, particularly for UK banks battling especially tough headwinds. But they are worth striving for: channelling the disruptive energy now flooding across banking will not only ensure banks’ survival, but can also reconnect them with their customers.
How, then, do banks pursue this optimistic vision, rather than succumbing to the pessimism? In our view, a new mindset is required. Banks must:
- Develop a vision for an evolved banking ecosystem that is driven by the needs of customers and society;
- Be clear about their own potential role in that ecosystem;
- Embrace and support disruptive but inevitable forces even if they threaten to erode profit margins;
- Be open to collaborations across the entire ecosystem.
Get that right and the future can be bright. Bill Gates was right to warn that while “banking is necessary, banks are not”, but that is not to say the demise of banks is inevitable. Those prepared to move to an outward looking, collaborative model of business – and to focus on the value they can bring to customers and society - have every chance of success.