With the ongoing metamorphic transformation of the financial services sector, collaboration is the order of business. The emergence of radically innovative fintech firms, technology adoption by traditional providers and the entry of BigTech are all factors behind this strategic move. However, the central catalysts in this paradigm shift are customers and their rapidly evolving needs and expectations.
The big disruptions in the financial services sector have all happened in the last few years, creating a generation of customers demanding convenience and immediate access to financial services. Customers born and raised in a digital world demand agile services that are delivered in real time, competitive pricing and personalization. And all of this without compromising on security.
To a great extent, fintech companies have succeeded in offering bespoke and in-demand financial services to this new breed of customer. Just a few years ago, the dynamics between fintech players and their legacy counterparts, such as banks and payment providers, were considered to be antagonistic. There were concerns that the emergence of fintech would have a similar impact on traditional players that the launch of the portable Mp3 player had on the established music industry. In time, these concerns were put to rest.
Today, fintech and traditional financial services companies are entering into win-win partnerships that benefit them and ultimately the customers. While legacy players are benefiting from the game-changing technologies, fintech companies are getting newfound access to funding and expansion opportunities.
To better understand the implications of this collaborative approach, which the industry is increasingly leaning towards, we need to consider three services that are leading the way for the sector—money transfer and payments, banking and fintech.
Money transfer and payments
The finance sector’s inherent culture of creating partnerships to enable customers can be attributed, to the nature of the business. The remittance industry depends on creating convenient channels for sending and receiving money around the world, but there’s no use sending anything if collecting it on the other side is going to be a task.
For a sector that services people from every corner of the world, building a robust global network of send and receive points was only possible by collaborating with regional institutions and businesses. Consequently, the entry of fintech and the disruptions that came along, was best received by money transfer operators. It was an opportunity for the sector to provide more convenient solutions to customers.
Today, the remittance industry is delivering more convenience than ever before, and whether it’s cash-to-cash, online-to-mobile, cash to mobile or any other permutation, the scale of remittance operations is ever-increasing due to the continuous spread of migration.
Banks today are partnering with fintech and other institutions with arms wide open, while also developing their technology arsenal to meet the growing demands of the customer. By collaborating with fintech and other service providers, banks are aggressively developing their service portfolios, offering more than traditional banking services to their customers, such as bill payment, remittance, travel booking, etc.
Fintech’s customer-centric approach means they are able to transform experience expectations by offering nimbler and more cost-effective services. So, why do fintech firms need to collaborate with traditional institutions? Well, most fintech firms lack the ability to scale due to weak brand recognition and trust. They also lack funding, the knowhow of compliance and regulation and an established distribution network. This is where banks and traditional financial institutions come in.
Building a successful partnership is not easy, especially in the financial services sector. According to the World Fintech Report 2018 by Capgemini and LinkedIn, successful collaboration between financial institutions will heavily rely on traditional institutions’ ability to identify and assess whether candidates for partnership have the characteristics necessary for sustained success across four pillars—people, finance, business and technology. Regulation has a key role to play in ushering in this new era of collaboration.
The shift in approach is palpable, especially when fintech players and traditional financial institutions get together on a common platform. Fintech companies are getting more mature, as traditional institutions develop a younger outlook. And they have each other to thank for it.
Sudhesh Giriyan is the COO of Xpress Money.