According to the recent Innovation in Retail Banking 2015 study by Efma, 41 per cent of banks regard the threat to their business model posed by startups as ‘high’ or ‘very high’.
It’s easy to see why the banks are concerned. Several of the best-known fintech startups such as Transferwise and Funding Circle have built their business model around directly challenging the big banks in areas such as money transfer and lending. But in reality, most fintech startups are creating services that would sit alongside the existing service offering that banks have in a complementary way. Rather than seeing this as a challenge to their business model, banks need to look at this as a massive opportunity.
For a start, these fintech startups are already reliant on the banks. They need bank accounts to cash their revenue, receive investors' money and pay the bills. And while the fintech startups rely on the banks, the banks can learn a lot from the startups.
They may actually be perceived as 'disruptive', but many of these fintech startups are simply providing what customers want. They are giving them access to tools like finance dashboards and price comparison services, things that you just don’t get with your typical online banking offering. And these fintech startups are smart enough and agile enough to get their products on to the market quickly.
The Efma study did give us some reasons to be optimistic, though. Despite the perceived threat of disruption, many banks - around four in 10 - said they would feel positive about the idea of working with startups, either as a supplier or a partner. However, that still means six in 10 banks don’t feel this way.
We need to adjust our way of thinking - though competition is key to a healthy industry, we also need a wide ecosystem with people co-operating, not just competing. Forget about our fetish for disruption. Let's talk instead about co-petition.
There are two major reasons why there are so many innovative fintech startups springing up. The first is that they have plenty of APIs (application programme interfaces) provided by large financial service players like PayPal to build around - and where there are APIs to build around, ecosystems spring up. The second, and possibly more important reason, is that big banks are struggling to offer innovative services to their customers. While there is demand for services that let users get a dashboard view of their finances, for example, companies like Mint will spring up and build just that, whereas the banks are yet to provide such services.
While financial service companies have opened up their APIs to third parties, not many of the major banks have actually done this. This means it is currently difficult for fintech startups to create a seamless experience for customers - for example, a budgeting tool that is directly linked to their business account.
However, all of this is set to change with the introduction of PSD2, which contains a clause within it known as XS2A (Access to Accounts). Effectively this means that banks will have to provide APIs for third parties that will enable them to build services that can quickly provide access to an individual's account information without the bank having to give permission, or the individual to be logged in to both their online bank account and the service that they wish to use at the same time.
This leaves banks with a choice - do they let the third parties take the customer adulation and risk losing being the interface through which banking is being done? Or do they strike white-label partnerships with the fintech startups, offering an 'app store' within their own online banking services that gives customers the ability to use all kinds of innovative services, but still carrying the bank's branding? There are some banks that have already recognised the potential of fintech startups and have acted swiftly to partner with, invest in and in some - albeit rare - cases, acquire them. Barclays is supporting the TechStars accelerator programme, while BBVA has recently announced a big investment in Atom Bank, after acquiring Simple last year.
There will be a lot more deals like this to come and this is ultimately to the benefit of the customers. Banks will be able to offer a much more comprehensive set of features above and beyond simple balance checkers and money transfer tools.
So while some industry commentators focus on the threat to big banks, we at Slimpay would rather concentrate on the needs of customers and the ongoing improvement of the services we offer them.
Jerome Traisnel, CEO & co-founder of Slimpay
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