Thursday, December 8, 2022

Banks and FinTech partnerships for better customer-centric services

Banks and FinTech partnerships for better customer-centric services

Capgemini released the World Fintech Report 2020, which states that at the moment, the divide between what consumers expect and what traditional banks deliver at present, is significant. It is consequently, the perfect time for banks to catch up with the whole back-end process in order to provide the most effective customer experience.

The report promotes a complete re-evaluation of collaboration between incumbent finance players and the new up-and-coming start-ups, which both stand to gain from such a partnership.

Despite the banking sectors maturing online presence and their significant investment in front-end IT infrastructure, there is now competition and customer expectations for what the report describes as “data-fueled, hyper-personalized experiences in real-time,” which are becoming increasingly more demanding. Incumbents in other sectors, have been somewhat quicker to adapt to this. 

Obviously, this lack of development leads to an ever-widening gap between what Big Tech and challenger banks offer consumers in comparison to the services on the market by traditional banks.

From 2016 -2019 the total investment in new IT increased from 24% to 33% however, both middle and back-end functionalities are still heavily reliant on outdated, time consuming and manual processes, which inevitably leads to an inconvenient and disjointed customer experience. As a result of this 40% of tech-savvy customers are prepared to leave their current banks within the next year because of their dissatisfaction with the service they receive, indicating a very worrying mass exodus of accounts if leading banks fail to transition.

To remain both attractive and competitive banks have to transition to being more customer-centric and innovative. Yet, this does not mean that they need to go through this transition alone. Challengers and FinTech – across banking and lending, payments and transfers, and investment management – are in many cases struggling to scale operations.

Even though partnerships between startups and traditional banking institutions is not a new concept, both sides have been unsatisfied with the results. The Capgemini report states that only 21% think that their in-house systems are agile enough for any collaboration. Only 6% claim to have achieved the return on investment they desired from the partnerships.

In contrast, 70% of FinTech disruptors do not agree with their partnering banks culture or organisation. The same amount is also frustrated by manual processes and barriers to swift progress. The CEO of Capgemini’s financial services, Anirban Bose thinks that this will require a substantial rethink in processes but that now is the perfect time to do it. If not now, then not at all.

The world has changed dramatically over the last couple of months. Businesses will evolve and emerge from the COVID-19 crisis in different and profound ways,” said Bose. “For traditional banks, this will translate into an even greater need for digital experience through further collaboration with FinTechs. Since we began this report three years ago, FinTechs have moved from disruptors to mature players, and it is now essential for incumbent banks to consider them not only as formidable competitors, but as necessary partners of choice to meet changing consumer expectations. Effective collaboration requires people, business, and process maturity. While, for traditional banks, failure is not an option, FinTechs are fast to market yet ready to fail. Inventive banks with the willingness and capabilities to collaborate at scale and industrialise innovation are most likely to prosper within the shared Open X ecosystem.”

Open banking is mainly focused on sharing financial data between the banking eco system. Open X from Capgemini, is a more structured collaboration that’s made possible by an API (Application Program Interface) and shared insights from customer data. The report also indicates that banks need to acquire a more specialist position within this new ecosystem, like that of a supplier or aggregator. They should not attempt to fill a holistic one as it leads to too many delays.

According to Capgemini’s Open X readiness Index, banks have already begun to lead a newer and more innovative approach to collaborating. Those that have been successful are ones with a dedicated partnership team. Leaders will also be keener to invest in emerging technologies and have little reliance on legacy systems, making the integration of FinTech easier and faster. The results of effective Open X collaboration should include improved top- and bottom-line growth, better productivity, enhanced customer engagement, reduced costs, increased transparency, and boosted employee satisfaction.

 “Traditional banks are at a critical juncture. They must embrace Open X or risk becoming irrelevant,” said John Berry, CEO of Efma.