3 minute read 15 Jun 2018
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How banks can unleash the potential of FinTech

Authors

Dai Bedford

EY Global Banking & Capital Markets Advisory Leader

Transformation leader in Capital Markets. Talent developer. Family man. Welsh rugby fan.

Bill Schlich

EY Global Banking & Capital Markets Leader

Banking leader. Globally focused. Holistic perspective. Enjoys golf, his son’s baseball games and fundraising for Covenant House.

3 minute read 15 Jun 2018

FinTech is disrupting the banking industry, and banks must react to the rapid emergence of these new market players.

The global FinTech industry is growing rapidly, driven by a powerful blend of innovative start-ups and major technology players. Banks that want to leverage its potential must act now to find ways to engage with these innovative organizations to achieve value-creating collaboration.

However, our analysis of 45 global banks reveals that only 25% are extensively engaged with FinTechs. Unless banks and FinTechs work together better, neither will reap the full benefits of innovation. They must partner, or they may perish.

Unless banks and FinTechs work together better, neither will reap the full benefits of innovation. They must partner, or they may perish.

Building better partnerships: actions for banks and FinTechs

Banks need to determine how best to engage with FinTechs, given the contrasting sizes and cultures of their respective organizations. FinTechs also need to know how best to approach and navigate their way through banks.

Here are several strategies for both types of organizations:

Banks

Develop a FinTech framework that rewards innovation

  • Don’t let risk-reward timeline conflicts derail planning
  • Define guidelines within your FinTech strategy
  • Design an end-to-end innovation management process

Choose an innovation model to connect new ideas to business needs

  • Embrace a hybrid innovation operating model
  • Define a distinct innovation team and clear leadership
  • Establish transparency around the end-to-end innovation process

Assess pros and cons of your FinTech engagement strategies

  • Collaborate to jointly develop new technology standards
  • Join accelerators and incubators for networking and ideas
  • Foster innovation quickly at all levels of the organization

Carefully manage talent and architectural change

  • Prepare for a multi-year transition to new architectures
  • Design new compensation models that reward innovation
  • Map evolving skill sets, including the impact of robotics

FinTechs

Articulate a value proposition

  • Don’t let risk-reward timeline conflicts derail planning
  • Define guidelines within your FinTech strategy
  • Design an end-to-end innovation management process

Differentiate yourself with regulatory prowess

  • Maintain the highest standards of integrity and avoid shortcuts
  • Seek out regulatory sandboxes to prove concepts
  • Find opportunities to collaborate with incumbents

Be prepared and well-networked

  • Collaborate to jointly develop new technology standards
  • Join accelerators and incubators for networking and ideas
  • Foster innovation quickly at all levels of the organization

Avoid overreach by building a robust business case

  • Build credibility with demonstrable ROI and short payback periods
  • Clarify the pricing strategy, reflecting value to both parties
  • Protect IP through nondisclosure agreements and sharing cautiously

Embedding FinTech in the banking ecosystem

The most successful banks will be those that improve agility and reduce costs by collaborating with a range of different partners to build the strongest ecosystem. Banks can't do it alone; the culture must be one of collaboration.

But to achieve this future state, banks will need to unleash the potential of FinTech in their own organizations. Ultimately, both banks and FinTechs must work better with each other to successfully drive innovation.

Summary

To maximize FinTech’s potential, banks must act now and engage with innovative organizations to achieve value-creating collaboration.

About this article

Authors

Dai Bedford

EY Global Banking & Capital Markets Advisory Leader

Transformation leader in Capital Markets. Talent developer. Family man. Welsh rugby fan.

Bill Schlich

EY Global Banking & Capital Markets Leader

Banking leader. Globally focused. Holistic perspective. Enjoys golf, his son’s baseball games and fundraising for Covenant House.