Banks unprepared for FinTech collaborations
The legacy IT systems of banks may be preventing effective collaborations with FinTechs, with just 6% of banks currently achieving their desired ROI on such ventures. Changing this will be key to incumbent banks if they are to bounce back following the current coronavirus outbreak.
It has been said for some time now that rapid advances in the financial technology space will mean that traditional banking institutions find themselves increasingly open to potentially disruptive competitive forces. This apparent threat has seen an increasing number of banks collaborating with FinTechs, in a bid to avoid losing market share and better serve customers.
Despite the hype, however, FinTechs and challenger banks are still struggling to pick up new customers from incumbents, or to monetise those they do successfully lure to their business. Leading on from this, bank and FinTech collaborations have since been found to be underwhelming, to say the least.
According to the latest edition of Capgemini’s annual World Fintech Report, just 6% of banks have achieved the desired return on investment from FinTech collaborations. While this sees most banks understandably dissatisfied with the situation, a large portion of the blame may be attributable to incumbents rather than FinTechs, however. Capgemini found that only 21% of banks say their systems were agile enough for collaboration, while 70% of FinTechs indicated they were frustrated with the incumbent’s process barriers.
Despite the displeasure on both sides, though, the researchers expect more collaboration may be on the cards anyway. The current global pandemic is likely to drive deeper relationships between incumbent banks and start-ups, as legacy applications prove unfit for purpose in a digitally-empowered future.
“The world has changed dramatically over the last couple of months. Businesses will evolve and emerge from the Covid-19 crisis in different and profound ways," commented Anirban Bose, CEO of Capgemini’s financial services practice. "For traditional banks, this will translate into an even greater need for digital experience through further collaboration with fintechs. Effective collaboration requires people, business, and process maturity.”
To prepare for that, many incumbents will have to improve their collaboration preparedness – something which Capgemini stated remains a low priority for established banks. At present, just 19% have a dedicated innovation team, for example, meaning that the segment of the bank FinTechs end up collaborating with is unlikely to have any decision-making authority.
Meanwhile, 58% of banks told Capgemini that they still depend on legacy infrastructure, and the majority are unwilling to take perceived risks in changing that. Just 25% are ready to take a ‘fail-fast’ approach to the changes needed for an effective collaboration with a FinTech.