Digital bank platforms rise as co-operation with FinTechs grows

Banks are continuing to team up with FinTechs in order to head off new, digitally capable competitors. As digital offerings become ever more important for retaining customers, 88% of banks attached importance to working with FinTechs in the future in a recent survey.

Across the banking landscape, new challenger banks and FinTechs are attacking the business models of banks, making inroads into their market share by offering agile, digitalised alternatives. In retail banking, the trend is visible across the value chain, from customer contact and lending to mortgages, payments and alternative financing.  The process of digitalisation is not always so obvious, however, and a number of factors are influencing the digitalisation process for banks – including the use of third-party platforms or whether they develop their own in-house propositions.

As competition in various segments of the market heats up, staying ahead of the game is a key priority for banks. Yet different institutions are at different levels of maturity in their digital development, with key questions about the relative position of banks in the segment remaining. To better understand the current trends, Roland Berger surveyed 60 retail banks across 10 countries about their current development in the digital space.

One area in which digitalisation is able to improve customer experience is the pace at which banks can process banking products. New technologies tend to have lower barriers to use, which results in faster services. According to the survey, the speed at which banks are able to process products has increased significantly. For instance, opening a new account can happen immediately at 50% of respondents in 2017, up from 33% in 2015; same-day account opening capability increased from 27% to 35% in the same period.

Consumer loan applications have seen a significant improvement in application processing time, too, with 26% able to acquire immediately and 20% the same day, compared to 9% and 12% respectively in 2015. Even mortgages are now much more accessible, with 2% able to acquire one immediately, 4% the same day and 30% within 1-2 working days.

A number of factors are driving banks to become innovative in the digital banking space. Consumers remain the most prominent, mentioned by 66% of respondents as a driver. Technology giants took the number two spot, cited by 47% of respondents as driving their focus on innovation, while FinTechs grabbed the number three spot, as cited by 42% of respondents. Focus on protecting large scale asset holders from crisis-level events, money laundering and other crimes, took the number four spot – as cited by 36% of respondents. Other banks, meanwhile, tend not to be seen as drivers of innovation in the space.

One area in which banks appear to be investing is digital platforms, in terms of both comparison sites but also digital marketplaces. However, the exact shape of such a service has not been developed, as banks are split on how they expect the environment to develop. The current survey showed that around 12% expect to create a platform for only their own banking products, while around 30% say that such a platform will support both their own and others’ products. A small number, 10%, expect there to be a wider third-party non-banking related offering on a platform. 22% don’t expect to develop a platform business model, while 17% had no answer to the question.

Retail banks are also expecting to shift into additional services that are more personal, such as relationship expertise (66%), while 17% say that they will remain a traditional retail bank but with complementary digital offerings.

Collaboration

So-called FinTech hype is rapidly cooling, and as it does, both banks and FinTechs are coming to see better long-term prospects in working together, than via one-sided disruption. Various factors have contributed to the shift, including the relative complexity of financial services regulation, the daunting task of scaling and access to wide customer bases that remain difficult to tap in some types of financial service product segments.

The study found that 86% of respondents are keen to cooperate with FinTechs, while 73% see FinTechs as a solutions provider. Some banks (47%) are investing in stakes in companies, while 39% said that they want to invest in accelerators and 31% in incubators. No respondent was keen on no cooperation with FinTechs.

Key drivers for cooperation included improved time-to-market, with 47% noting this was very important and 47% saying it was important. Access to disruptive mind-set and skills was noted by 42% of respondents as very important and 45% as important. Meanwhile 66% said that working with FinTechs was important to improve their competitive positioning in the market, and a further 22% said this was very important.