Hand in Hand: highlighting new ways for banks and fintech start-ups to work together
The disruptive power of fintech start-ups and think tanks has been the talk of the financial services sector for some time now. T-Systems Hungary’s Financial Services Expert, Gabriella Csanak, reveals her take on the latest shifts in the landscape.
What changes have you noticed since you began monitoring the fintech scene?
Financial technology, or fintech, burst onto the banking scene in the form of innovative and energetic start-ups whose blue-sky thinking had an instant appeal for digitally savvy consumers. The biggest breakthroughs occurred in Asia and the US, but increasingly, fintech start-ups have appeared in Europe too.
Can you give us an example of an emerging fintech company looking to take over banks’ core business?
Take N26, the Berlin-based start-up that launched in 2015 and has successfully positioned itself as Europe’s first completely mobile bank offering the most modern bank account available. Just two years later, the company has snowballed, now boasting 500,000 customers, a full range of retail banking services across seventeen European countries, and a premium “black” service to boot. The ultralow fees, multilingual app for managing accounts and overall lack of red tape are key to N26's sustained popularity. The company has also formed a strong relationship with Apple Pay and recently entered both Italy and France with a payment solution. And it won’t be long before N26 becomes a familiar name in Anglophone countries: it’s planning to hit the UK and US market in early 2018.
What about the tech giants? You know, Google, Amazon, Apple, and Alibaba?
I would say these e-commerce and tech giants are also looking to leave their stamp on the market. Given the tremendous resources at their disposal, it’s easy to see why they might launch their own entirely digital financial platform and sweep smaller fintechs and struggling banks off the board. Amazon has already provided its own platform for 20,000 small business loans totaling 3 billion US dollars. Meanwhile, Alibaba boasts a 25% share of the small ticket personal financing market in China alone, and they also have a 12% market share in the investment funds market.
How are banks responding to the pressures from the start-ups on the one hand and the tech giants on the other?
While some banks view the success of start-ups as a disruptive rival to the tried-and-tested traditions of conventional banks, I’ve noticed a true sea change occurring recently. In the past two years, banks are regarding fintech start-ups as potential collaborators, not as competitors. Forward-thinking banks are using incubator programs and extensive mentoring to turn the fintech revolution into a win-win situation for all. What established banks may lack in innovative flexibility, they can make up for by partnering with start-ups and sharing their deep knowledge of the complicated legal framework of the banking world. By doing so, they can utilize smaller fintechs’ game-changing proposals to accelerate their own digitalization.
Senior Industry Expert,
Deutsche Telekom AG
What are some examples of this shift?
Well, start-up and fintech culture has especially flourished in central and eastern European countries over the past few years. Austria’s Raiffeisen International selects six of the top European start-ups to mentor, whereas Hungary’s fourth-largest commercial bank, MKB, is already well into its second round of its successful Fintech Lab. More globally, Barclays’ global fintech program, the Barclays Accelerator, has worked with 40 companies in London and 20 each in Cape Town, Tel Aviv and New York—and all this in only three years.
As this emerging financial sector continues to grow at its current exponential rate, more and more banks are eager to set themselves apart and offer the ultimate incubator package. These schemes prove just how productive collaborative partnerships can be.
And how do these collaborations appeal to savvy consumers?
For the consumer who is always on the lookout for ways to make daily life run more smoothly, these innovations couple revolutionary thinking with a high degree of trustworthiness. This opens the door to breakthroughs such as instant payments, not just from one bank account to another, but also between secondary identifiers like two mobile numbers. As the average consumer grows more excited by and reliant on what technology can offer, the pressure is on the traditional financial services sector to provide solutions that will appeal to the next generation.
How is T-Systems helping banks to navigate the changing fintech landscape?
We at T-Systems Hungary and Deutsche Telekom believe that that the importance of the mobile phone is increasingly significant. Today’s “here and now” consumers expect to execute everything instantly on their mobile phones. This includes banking and insurance services, whether they want to open a bank account, make payments, transfer money or file an insurance claim.
We also foresee that the branch networks will endure for a very long time, but that their role will change from transaction centers to relationship management centers and will service customers in an increasingly digitized manner.
We provide the tools they need to succeed. For instance, we are helping banks establish expert hubs. It’s not realistic for each brank to have to top investment bankers and top mortgage bankers. Instead, these hubs gather five or six experts who can cover the entire country through video banking. Customers can use our sophisticated conferencing systems from any branch in the country and immediately get the advice they need. We believe in utilizing today’s technology to provide more at a lower cost.
And how about outside the branches? How is T-Systems supporting banks to give customers what they need when they’re on the go?
Let’s take one example: In addition to consumer demand, the government too is putting on the pressure. They recently made real-time, i.e. instant payments, a requirement for banks. This allows banks to tap into a market currently dominated by P2P payment providers such as Venmo, Stripe, Square, and PayPal, and large credit card companies such as Visa and Mastercard.
To help banks implement this decision, T-Systems experts from our competence center offer advice on common challenges faced when moving to instant payments and possible solutions for addressing them. Real-time fraud detection, for instance, is essential in the context of instant payments. Deutsche Telekom services such as lightning-fast internet ensure that real-time speed in transactions is achieved, making them natural and automatic, which is an absolute must in a digital world.
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