How traditional banks are using fintech startups in their digital transformation efforts

Posted on October 13th, 2016
Tech

How traditional banks are using fintech startups in their digital transformation effort

 

Fintech startups are increasingly becoming central to traditional banks’ digital transformation strategy.

According to a survey conducted by SAP and IDC Financial Insights, one in three (34%) global banks responded that they were open to partnering with fintech companies, while one in four (25%) would be open to an acquisition.

Recent partnerships between South African fintech startups and traditional banks include the likes of Snapscan, a point-of-sales service, and Standard Bank; and Absa which recently announced a partnership with startup walletdoc, a mobile payment solution service.

Traditional banks are increasingly turning to fintech startups to help them remain innovative. This is according to Simon Blissett who is head of financial services solutions and innovation for Europe, Middle East, Africa and Russia (EMEAR) at CiscoBlissett is responsible for the global technology company developing new financial systems solutions and shaping Cisco’s innovation strategy in the region.

However, while big businesses are open to taking advantage of new technologies, innovation within them continues to rank low.

“According to the recent WEF Network Readiness Index (NRI), which was sponsored by Cisco, South Africa’s digital rank has improved by 10 spots to 65th place due to developments in infrastructure and affordability.

“Despite this vast improvement, innovation still falls by the wayside. Should big businesses work more closely with small businesses to rethink traditional models and remain innovative, this ranking will improve drastically on a global scale,” says Blissett.

Customer-centric

Fintech startups are not only coming up with technological innovations and platforms which are of interest to traditional banks, but big banks are also taking lessons from startups’ agility, their rapid management processes and their ability to fail fast, [and] learn fast, says Blissett.

However, the most important lesson may be in a startup’s ability to respond to the needs of the tech-savvy customer, he adds.

“Traditional businesses have had to rethink their business model to suit their tech-savvy customers.

“The tech-savvy customer wants technological innovation, but a personal customer experience is still essential. Small businesses, along with traditional banks, can bring both factors to the table,” he adds.

Mobile banking is an area where startups have been particularly successful in responding to a gap in banking services, especially in Africa where a large portion of the population remains unbanked.

Through mobile, a small ecosystem of vendors has been able to make banking accessible to users who [otherwise] wouldn’t be able to bank, says Blissett.

Agility, scalability and collaboration

What kind of fintech startups are the banks looking to work with? Blissett’s answer is for them to create or develop human-centric products or services that address a human need.

“Small businesses need to develop solutions that make a real difference to the life of the end-user – they must solve real problems that can be deployed at scale, often in a global setting as globalisation takes hold,” says Blissett.

He says agility and scalability are at the core of a successful partnership.

“Despite the size of a business, it is integral for companies to remain true to their core nature from the onset. At Cisco, we have acquired many companies of various sizes over recent years. Our key learning is to find the balance between integrating the new business enough for it to benefit from the size and scale of the parent organisation while preserving the entrepreneurial nature of the business that made it a success as a startup. This is often more about culture than technology,” says Blissett.

Fintech startups that wish to partner with big businesses should consider these essential points:

  • Be hyperaware of customer needs and use a personalised approach in their product offering
  • Make fast, informed decisions that will benefit the growth of the SME
  • All business tactics need to be executed quickly – this is important in helping SMEs fail fast and learn fast
  • SMEs should know that large business wants scalable solutions – ones that can be monetized on a global stage to make the investment and integration pain worthwhile.