‘Fintech 2.0’: Rebooting Financial Services
By Mariano Belinky, Managing Partner, Santander InnoVentures
After struggling to gain traction, fintechs are now capturing a growing market share across financial services areas including ATMs, credit cards, securitisation and mobile banking. While we’re seeing these fintechs go from success to success, we believe they are still only operating around ‘Fintech 1.0’ – the fringes of the banking sector. In order to engineer more fundamental change to the industry, these fintechs must be invited inside and given access to core infrastructure and processes – in partnership with the banks themselves.
So how does the industry achieve this? We believe a call to action for both banks and fintechs is necessary to consider the opportunities available through partnership. The strengths and weakness of both parties lend themselves to such a scenario. New and innovative digital start-ups offer the agility required in today’s marketplace of rapidly evolving consumer expectation, but often lack the resources required to grow in a prudent manner. Large banks can bring to the table immediate scale, critical mass and access to resources and expertise, but can be cumbersome in implementing innovative services. Collaboration across the industry combines the best of both worlds, benefiting the players themselves as well as the end customer. We’ve identified four key technologies we believe will be key to achieving multi-billion dollar efficiency improvements:
1.The Internet of Things (IoT) in banking
With the widespread ability of objects to now transmit data about their identity, condition and environment, there’s currently a rich vein of data untapped by the financial services sector. While compelling uses have not yet emerged, we see a few valuable application areas including asset financing, risk management and pricing, understanding customer needs and streamlining contractual processes.
2.Being smarter with smart data
In a similar way to the IoT, digital technology has created a vast amount of available data for banks. Through collaboration with fintechs, banks can achieve a method to effectively analyse this data, offering insight on value metrics such as customer transaction behaviour, viewing and listening behaviour, real-time satisfaction and location preferences.
3.Distributed ledger technology
With distributed ledger technology such as Blockchain (but not exclusively) comes a number of attractive features: irrevocable transactions records, near-perfect accuracy of transaction execution, transactions openly verified by a community of networked users and a publicly accessible historical record of transactions. By speeding up and streamlining the transaction process while supporting ‘smart contracts’, it’s only a matter of time before we see distributed ledger technology widely adopted as a cost saving tool.
4. Frictionless processes
Many processes across banking are needlessly expensive and time consuming. A prime example of this is the $25trillion global new mortgage processing market. By adopting the latest digital services, banks can reduce the friction involved in these processes and achieve significant cost savings, while benefiting the end user: the customer.
While banks must continue to innovate to provide cutting edge digital services, they cannot attempt to do so alone. Similarly, if fintech start-ups truly want to penetrate the financial services industry and increase market share, they must look elsewhere for a way inside. Bank-fintech partnerships are a genuine win-win situation for both parties – something we believe is the future of the financial services industry.
Our recent Fintech 2.0 paper, in partnership with Oliver Wyman and Anthemis, explores the areas above in more depth: www.santanderinnoventures.com/fintech2