The Changing Financial Institutions Landscape
If you are a part of the financial services industry you’re well aware of the rapidly changing landscape that is requiring banks to change and adapt or risk becoming obsolete. One driver of this need for change is the appearance of fintech. Fintech is a broad and often defined term, and one description is “new tech that seeks to improve and automate the delivery and use of financial services.”1 Further, with the introduction of fintechs and their related technologies, the industry has seen an increased ability to unbundle traditional roles of money and re-bundle them with an array of services, which wasn’t possible until recently. Additionally, there is an increased ability to capture and analyze both internal and external data, including social interactions.
Lessons from the past indicate a need for adaption and change for companies to remain relevant and profitable. Banks have a few options for dealing with the changing financial technologies landscape. The options include doing nothing and staying with the status quo or deciding to embrace digital transformation. One way to embrace digital transformation is to work with a fintech. There are a few avenues that Banks can utilize to develop a relationship with a fintech directly or indirectly through their core processor:
- Replacing an existing service or adding a new service through a third-party solution
- Enhancing current services with a joint solution
- Developing a new product through a joint venture
With any of the adaption options, there is a need for the buy in from the highest level of the bank as well as participation from all levels of the organization. The bank’s culture and core strategy are important considerations when determining the best course of action. An adaptive culture is one that focuses on the needs of the customer and defining new ways to serve customer needs, it is collaborative in nature and focuses on learning and growing. The bank’s strategy and what it wants to accomplish is the other key consideration. As part of a formal adaption strategy and planning process there should be specific funding for technology that enables “innovation.”
Determination of the appropriate digital transformation option should delve from a well-planned process that includes steps to develop the strategy, define the opportunity or problem, and look for the right solution. When looking for the right solution, Banks should proactively evaluate the market and evaluate the options available rather than wait for the options to be forced upon them. Evaluating the options can include more than just the standard due diligence of evaluating financials but can also include evaluating the culture, short- term and long-term goals, and what success is defined as for a potential solution, keeping in mind that the solution should enable leveraging the identified opportunity or solving a defined problem.
As is true for all significant initiatives, banks should be mindful of compliance requirements and contact their regulators to share their plans before implementation to ensure compliance.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.