The year 2020 already looked decisive for banks given the confidence crisis, flagging attractiveness, and fierce competition. On top of this, factor in banks’ dwindling profitability which will also be highly impacted by the health crisis we are currently experiencing. The sector was already at a tipping point and the crisis only compounds this. Competition is coming from all sides and we are likely to see the cards reshuffled. Tech giants have been encroaching on banks’ playing field for years and they have strengthened their position during this crisis – a crisis which incidentally has revealed our dependence on the GAFAMs, now more than ever. The diverse and buoyant FinTech ecosystem on the other hand, is at risk of becoming fragmented with contrasting realities; some stakeholders are taking advantage of the ‘all digital’ wave, while others appear to have financial weaknesses, due to the youthfulness of the sector, or their business models.
The frontrunners are challenging banking sovereignty while those following are positioning themselves on specific market segments or as genuine partners. Innovative FinTechs have been incredibly successful on a traditionally closed market, but the crisis may exacerbate their weaknesses, or worse still, some will not survive. This was already apparent: broadly speaking strong growth comes at a price.
More than ever, we must rethink the fundamentals of the banking ecosystem, with a collaborative approach integrating notions such as innovation, new usages, security, and sovereignty; the future of the banking world hinges on interconnections between banks, FinTechs, and digital players.
Opening up banking in the industrial era: a strategic choice?
Open Banking is part of the banking sector’s transformation, thanks to its improvements in the digital tools and solutions now offered to customers. Driven by PSD2, Open Banking opens up new avenues for banks and customers. In addition to their own assets, banks can call on other competent players capable of industrialising digital – whether it be in terms of Backoffice, or the digital layer greatly pre-empted by FinTechs.
While Open Banking is a high-value added opportunity, it is struggling to assert itself because actually implementing an open architecture is a great deal more complicated than the idea itself. Will the COVID-19 crisis lockdown make a difference? Banks, like all businesses regardless of their sector, have been hit hard by the rapid and widespread transition to homeworking. Against this backdrop, it is obvious that those who perform (and will perform) best, are those that have more open IT. The only obstacle remaining is bridging the potential cultural gap between banks and partners. Connecting a FinTech may prove to be a longer process that initially planned because a bank needs to get to know its culture and processes – all of which slows down time to market.
The financial ecosystem and especially banks are seeing their data being leveraged; this can represent a real gold mine when we manage to harness its value. Yet, banks, FinTechs, and digital players are facing the same issue and must join forces to best serve this data-driven transition. Open systems are therefore essential for the future of the sector because they establish a blueprint for banks in a digital world where sharing and cooperation are key.
Banks and FinTechs: from competition to ‘co-opetition’
While an API-based approach to banking systems is still regarded as the keystone to Open Banking, it is also a great driver for value creation in banks. Banking modernisation and the future of FinTechs lies on their capacity to reconsider how their customers are positioned, like the tech giants who have made consumer usage central to their strategy.
By moving from a vertical approach based on traditional products to a customer-focused concentric approach, banks will be able to rethink their model and make it more robust by calling on FinTechs. The latter remain independent and can choose the new cooperation models (incubator, accelerator, partnerships etc.) that suit them best in order to offer evermore compelling agile solutions.
This complementary relationship has enabled banks and FinTechs to pave the way for ‘the bank of the future’ and this is facilitated by digital players playing a key role in an ecosystem that never ceases to reinvent itself. This winning trio – banks, FinTechs, and digital players – is the only combination that is capable of renovating banks to leverage Open Banking and offer consumers new experiences that address their expectations and consumption habits.
Today, co-opetition between banks and FinTechs, boosted by digital players, is required if we want our banking system to remain competitive internationally, withstand aggressive competition from American and Chinese digital giants, and get going again after this unprecedented crisis. Banks must let innovation and usages providing high-value added services to customers take the centre stage. They must also support the link with customers as well as the experience they can offer.