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Filling the Product Gap: How Banks Can Keep Up with FinTechs

We are literally in the eye of a digital transformation hurricane. Today’s technology revolution is top of mind for nearly every business leader in nearly every industry. Today’s technology revolution is top of mind for nearly every business leader in nearly every industry. According to the„IDC FutureScape Worldwide Digital Transformation 2017 Predictions“ , by 2018 two-thirds of the CEOs of Global 2000 companies will have digital transformation at the center of their corporate strategy.

A July 2017 Harvard Business Review vom Juli 2017 mit dem Titel „The Financial Industry Needs to Start Planning for the Next 50 Years, Not the Next Five“ , paints a dire picture for the banking industry. “The financial services industry, a traditional laggard in technology adoption, is just now entering the digital phase. Signals abound: FinTech companies are launching at unprecedented rates, with improved user experiences and more-transparent practices.”

Banks are struggling to keep up with the fast pace of FinTech innovations. Hindered by legacy technology platforms, banks are behind the curve when it comes to matching the nimble, flexible and scalable product development of these new born-in-the-cloud rivals. As a result, the McKinsey Global Banking Annual Review for 2015 predicts that legacy financial institutions will see profits decline 20% to 60% by 2025 if they fail to evolve digitally.

Product Gaps: Vulnerability or Opportunity?

As corporates actively engage in digital transformation, the treasury function is increasingly looking to integrate various digital initiatives across the business with the goal of improving revenue as well as the customer experience. with the goal of improving revenue as well as the customer experience. One example of this can be found in the rapid adoption of Application Programming Interface (API) technology, which can be embedded in a corporate’s treasury management system such as an Enterprise Resource Planning (ERP) solution, allowing them to more easily access bank balances and send instructions.

APIs hold tremendous potential benefits for corporates who are able to gain real-time access to bank services, improve reconciliation by directly retrieving account data, and taking advantage of dynamically exchanged workflow information.

The challenge many banks face is that their legacy platforms were not designed with cloud technology such as APIs in mind, making it far more difficult to incorporate these highly in-demand solutions. The patchwork nature of many bank platforms has left a product gap, opening the door to FinTechs, whose born-in-the-cloud technology offers the hyper-connectivity corporates are finding exceedingly attractive.

This product gap can be seen as a serious vulnerability for banks, as FinTechs disintermediate financial services organizations, or it can be viewed as an opportunity to partner with third-party providers to fill those gaps and strengthen the client relationship.

Can Banks and FinTechs Develop Mutually Beneficial Partnerships?

Some banks see FinTechs as dreaded foes determined to marginalize their business and steal their clients. But this need not be the case. Partnerships with FinTechs can be mutually beneficial, filling product gaps and offering corporates the solutions they demand, including dynamic discounting, reverse factoring and factoring services, supply chain financing, other asset-based finance solutions.

Banks can partner with FinTechs to take advantage of their advanced technology platforms, thereby unlocking the value between the bank and its clients using ERP data to strengthen supply chains and deepen relationships.

It is true that some FinTechs are more than happy to work with banks, but ultimately see them as little more than a supplier of credit. In such relationships, banks run the real risk of becoming marginalized. Of course, not all FinTechs are the same. Some legitimately want to partner with financial institutions, working to mine and leverage deeper levels of data and bring new offerings that better support corporates. These third-party providers understand the inherent value in maintaining the deep relationships between banks and their corporate clients, and view their role as an important symbiotic partner that can fill product gaps, ensuring that banks remain competitive.

The Business Landscape is Rapidly Evolving

There’s no question that the business landscape is rapidly evolving. In the aforementioned Harvard Business Review article, author Nadeem Shaikh commented about the current environment, “Innovation in financial services will happen in part through the diffusion of new revenue models and technologies, combining entrepreneurial ideas with institutional and operational expertise.”

Such partnership between banks and FinTechs holds deep potential. Banks possess the institutional knowledge of their client’s business, which is critical in developing and delivering a superior product offering. This is complimented by FinTech’s nimbleness to create and launch solutions at the speed of “now,” helping corporates execute their payment function in ways that fully leverage today’s digital world.

Together, this delivers a win-win-win, with banks gaining the opportunity to fill product gaps quickly and meeting client needs. Clients get the tools they need from a banking partner that knows their business well and that brings that knowledge to enable them to drive efficiency and reach their vital business goals. And FinTechs are able to contribute to a deepening of relationships with banks by providing the most innovative tools that meet today’s evolving marketplace needs.


Alan Koenigsberg is a strategic advisor to Traxpay. He is a payments expert and served as a banking and payments executive at global financial institutions for more than 25 years.

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