FinTech 2.0

Deutsche Bank
FinTech 2.0
currently undergoing, which involves deep and rapid shifts to the sector and to
traditional business models. As well as inverting attitudes to re-categorise new
players as allies rather than competitors, banks are currently re-assessing and
refining their long-term digitalisation strategies. Fintechs must be accepting
of the disparity in the pace of change between long-established banks and
new, more nimble players, and be willing to co-operate and align themselves
with bank efforts to integrate. The advantages of these alliances stem from the
divergence between bank and fintech strengths, but this difference must also be
carefully managed to avoid rifts in communication and expectation.
Technical compatibility:
One of the biggest technological obstacles to digital change is banks’ legacy
systems. In the B2C space, technical change has occurred very much at the
superficial front-end of customer interaction, making change both easier and
faster. But for the B2B space, banks and fintechs need to ensure technical
compatibility and connectivity is in place before embarking on a partnership.
This may mean technological updates and infrastructural overhauls for banks, to
ensure systems and processes are flexible and interoperable at the back-end, and
enable the facilitation of open APIs (a day-to-day norm for fintechs but still largely
underused in banking). The ideal partnership is one that does not require overly
heavy investment into achieving connectivity, but easy, low-cost connections will
only be possible if banks’ infrastructures are up-to-date.
Change can also be facilitated in part by information and education. For example,
discussing the use of APIs in the treasury or corporate space can stir anxiety
around security. Most banks continue to use outdated communication protocols
with their corporate clients – many of whom are technology-based or tech-driven
companies – that limit message or file size or message frequency.
Going forward, banks will need to embrace APIs as a protocol that allows them
to communicate with clients in real-time in an almost unlimited manner. This will
be crucial for new solutions reliant on accessing up-to-date bank data such as
FX rates, and failure to use APIs in these instances could leave such solutions
open to risk. That said, the introduction of APIs into the sensitive environment
and rigid infrastructure of banks – quite rightly concerned with protecting client
information and internal systems – will require an attitude shift and better
understanding of the technology in play.
Banks are only at the beginning of a journey; one where the bulk of their data will
need to be converted from unstructured to structured, in order to leverage the
possibilities offered by Big Data analytics. In addition, fintechs should be wary of
underestimating the adaption to the regulatory environment and end-to-end due
diligence necessary on their side in order to work with banks.
Ultimately, entering into any partnership will require adaptation and flexibility
from both sides. But these challenges are dwarfed by the wealth of potential.
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