How financial institutions can meet the FinTech challenge

FinTech (financial technology) companies are now entering the mainstream of the financial services sector. FinTech is a disruptor to the traditional business landscape in financial services but also a potential remedy to the large operational issues of the industry. Emerging companies in the field – from online lenders to money transfer businesses to credit rating and beyond - rapidly secured large customer bases and traditional institutions have had to start paying attention.

Most incumbent financial services companies have responded to the impact of new FinTech companies in one of three ways:

  1. Wait-and-see, protecting valuable resources;
  2. Fixing and upgrading their existing IT infrastructure; or
  3. Acquiring FinTech firms to access new technologies

Each of these approaches takes time and resources. However, by taking elements from each of the above responses, companies can re-orientate themselves as the dynamic centre of the new FinTech ecosystem. Traditional institutions have the benefit of starting from a position of trust with their customers, they have a wealth of customer data and they have a deep knowledge of the regulatory environment.

If traditional institutions research financial technologies with a mind to creating new products & services that fit together in a unique way, they’ll be able to make a distinctive product available to their customers. Companies need to focus on what they do best and look externally for third-party technology providers whose products fit their institution’s business criteria.

 

A shift in culture is needed

This approach, however, will need a fundamental change in organisational culture – from protecting existing products, services and customer relationships to one that is more responsive to customer demands and more embracing of new technology as it evolves. New institutional capabilities are required which combine a deep understanding of the new technology landscape and how it can be integrated into the organisation’s architecture with deep insights into customer preferences as well as how to partner effectively with external providers.

Transforming any business model is both challenging and quite risky. If it’s not done carefully, it could lead to brand erosion. If implemented too quickly the learning curve for customers and staff alike could result in some frustrated customer experiences.

Many companies have already started to break down internal silos to better share customer data across their organisation, thereby implementing more of a service-oriented architecture. It is this approach that is key to becoming the centre of a FinTech ecosystem. It’s about pulling together links to all of the disparate external players.

Incumbent financial institutions cannot afford to ignore FinTech, especially given how fast the financial services landscape is changing in parallel with consumer tastes. With a well thought through strategy companies can put themselves at the heart of customer activities. It just takes planning, focus and good relationships with external innovators.

This issue is discussed in more detail in my article on the Strategy& website. To read the full article click here.

Do you see FinTech as disrupting financial services or helping to build a new ecosystem? What strategy is your financial services institution using to survive and thrive in this ecosystem? Share your thoughts below or schedule a meeting to discuss your thoughts in confidence.

Joerg Ruetschi |  Strategy&
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