A recent study sponsored by German software firm SAP SE has yielded a ground-breaking revelation. The majority of global banks are open to working with financial technology (fintech) start-ups.
Future-Proof Digital Bank
This Future-Proof Digital Bank research was carried out by IDC Financial Insights, a business financial services provider. Polling respondents from 265 retail and corporate banks across 24 nations, IDC found that 60% of global banks would form partnerships with fintech start-ups. Specifically, 34% would be willing to collaborate with a fintech firm, while 35% would be open to buying a fintech company.
The report was designed to determine how banks are driving digital transformation in finance. It found that despite improving relations between banks and fintech firms, the former need to implement key policies developed by the latter to achieve complete digital transformation (DX). The majority of banks surveyed argued that they are digitally savvy. IDC’s study indicated that true company-wide DX remains rare in finance, with most initiatives merely posing as “islands of innovation.”
Commenting, SAP’s Global Head of Financial Services, Rob Hetherington, said: “Banks are in the midst of digital transformation, looking for ways to speed their time to market and to deliver new value or services to customers. Start-ups on the other hand are mobile, agile and built solely for the customer, yet they lack the regulatory know-how and customer confidence that large, global banks have. Both have something the other wants, and I anticipate that we’ll witness far greater collaboration, integration and – in some instances – acquisitions happening in the next year.”
Driving digital transformation
Reporting on this research, Yahoo rounded up its other key findings, breaking observations down by region. IDC’s study noted that North American Banks see DX as a business enabler. In this region, 40% of banks devote over a quarter of IT budgets to DX, while only 20% view DX as an organisational strategy. In Europe, the Middle East and Africa (EMEA), investment revolves around the consumer. In this region, 57% of respondents noted that DX has improved consumer experiences, but only 25% have implemented a broad strategy to enable digital transformation throughout their operations.
It is important to note that 28% of respondents internationally have rolled out a company-wide DX initiative, but this number was higher (at 29%) for Asia Pacific (APAC) banks. Over the last few years, Asian governments are taking different regulatory approaches to this issue. developing a competitive fintech market and ensuring that fintech firms can operate in favourable environments. But among APAC respondents, there was less emphasis on enhancing consumer experiences via DX, with 41% citing this as a priority, compared to an average of 50% among worldwide respondents.
Speaking out, IDC Financial Insights’ Research Director, Jerry Silva, noted: “Digital transformation at any bank always begins with an honest self-evaluation involving many questions that touch upon evolving customer demands, strengths, weaknesses and the competitor landscape. From there banks must then invest in a full DX by building board-level involvement, build a leadership structure for organization-wide transformation and finally build an infrastructure that supports partnerships.”
Htet Tayza’s analysis
Technology is changing consumer habits. Data compiled by Novonous indicates that global mobile payments, for instance, will achieve a compound annual growth rate of 36.26% by 2020. More financial institutions are recognising the value of devoting resources to developing fintech. Almost two thirds (65%) of International Securities Association for Institutional Trade Communication members say that investing in technology should be a core focus in 2016/2017.
But traditional financial services providers have been somewhat reticent when it comes to partnering with fintech start-ups. A recent survey conducted by PricewaterhouseCoopers found that 76% of financial institutions polled feared losing business to fintech firms. But the SAP SE-commissioned research suggests that financial institutions are gradually realising that they can utilise the services supplied by fintech start-ups to drive digital transformation. With this strategy, they can compete in a global financial sector which is changing rapidly, due to the onset of convenient fintech solutions.