Banks, insurers and asset management companies are undertaking major transformation efforts – with a noticeable shift in established players looking at acquiring or partnering with fintech operations.
KPMG International conducted a survey of more than 160 financial institutions from 36 countries to understand how institutions are approaching fintech opportunities.
It is evident that fintech is the biggest disruptor of our time for financial institutions. Whether it’s providing new ways to enhance the customer experience, responding to regulatory change, underpinning new payments or digital delivery models, making service delivery faster and more cost-effective, or improving the efficiency of back-office functions – the myriad fintech solutions now available, or in development, are helping to rapidly reinvent the entire value chain of financial services.
The results from the survey show that no single path has emerged to define how companies should approach fintech. Every organisation has the opportunity to forge a new fintech future.
Notwithstanding this reality, it is possible to capitalise and monetise on recorded best practices across leading financial institutions to date. High on the list is strategy. Having a clear fintech strategy that aligns to organisational objectives, considers current assets and capabilities, and includes an execution plan for addressing gaps and managing transformation that may never have a defined end point, is critical. This begs the question: where does a company that aspires to be at the forefront of the fintech revolution start?
First, an organisation needs to identify fintech leaders. On the basis of research conducted thus far, fintech leaders ought to have certain characteristics to be able to develop a fintech strategy and successfully drive their organisation into a future which is likely to be dominated by fintech.
First, they need clarity of vision: a concrete vision for the future and a leadership team thoroughly committed to seeing the vision implemented. Awareness is also critical: they need to be aware of the signals of change occurring in the financial services market and combine this with a well-developed yet adaptable strategy for leveraging fintech innovation in order to achieve its strategic business objectives.
Collaboration is also important: with customers to use their demands, pain points and challenges, to drive technology innovation from the outside in; and with internal and external relationships in order to drive its fintech strategy and buy-in for specific initiatives.
The team dedicated to implement fintech innovation needs to be agile and adaptable, as well as focused on outcomes, with specific plans to measure and assess the impact of fintech innovation. At the same time, the company should recognise that ROI may take time to achieve and so needs to identify a range of other measures and metrics in order to help guide fintech-related decisions. This will enable the company to focus on implementing the long-term, transformative changes required to reshape the work they do and how they do it, while also implementing the incremental changes required to respond to day-to-day challenges.
Ultimately, these fintech leaders should be open to learning, not only from its own experiences, but from the experiences of others both within and outside its industry.
The next step is to strategise and identify the best approach to proceed. This can take the form of building, sourcing, white-labelling, acquiring and partnering. Building allows organisations to define the scope of their innovation initiatives, design tailor-made products and create buy-in among users over the course of the innovation initiative.
However, very few financial institutions have the time, resources, capacity and agility to be able to focus on fintech innovation efficiently and effectively.
With regard to sourcing, it transpires that many fintech companies are looking to sell or license their technologies to financial institutions. The benefits range from reduced cost of innovation and access to established solutions to talent and innovation capacity. However, in order to make the most of this option, financial institutions are evolving their procurement processes to accommodate taking on the capability from small, start-up fintech companies that can help them solve problems in specific areas.
For financial institutions looking for custom solutions, there are a growing number of fintech and other technology companies with the capacity to white label a product or service for them and that they can then brand and sell. The benefits include prescribed costs, a diversified approach to innovation and the ability to test value and fill productive and service gaps. Among the key challenges are less control than developing these products internally, and the need to integrate this innovation structure within the business and to share revenue.
While buying or investing in fintech companies can be an effective way to leapfrog the development process, financial institutions are still working to find the best ways to evaluate a purchase or investment.
Over the course of the last two years, there has been a distinct trend towards collaboration and partnership – also known as fintegration – with respect to how financial institutions approach fintech opportunities and challenges. This distinct trend is heartening for local financial institutions that are still playing on the sidelines of the fintech revolution. Partnering offers numerous benefits, including access to talent, enablement of a portfolio approach and increased speed to market, although is not necessarily a straightforward process. Organisations that have established partnerships have found themselves mired in roadblocks, from lacking the application program interfaces required to enable seamless integration to the time-consuming process of establishing governance structures and risk management processes. Without strong guiding principles and a strategy for managing partnerships, it is highly unlikely that financial institutions will be able to achieve the full value that working with fintech companies can provide.
Taking a look at how leading companies approach partnerships culminates into five distinct and yet interlinked themes: laser-sharp focus, strong evaluation frameworks, outside the box thinking, a global mindset and experienced advisors.
The latter plays a key role in the fintech imperative as organisations need an extended network of experienced advisors, to help identify and establish partnerships, and also to supplement their existing skill set and provide assistance with both evaluating partnership opportunities and with managing the legal and risk management issues that might arise during the development and execution of any partnership arrangements.
Financial institutions that take the time to define their fintech strategy and align it to their business goals will be best positioned to help forge the future of financial services.
Mark Curmi is associate director, banking advisory services at KPMG.
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