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Vishrut Jain, FEVP, Transformation, Siam Commercial Bank
Fintech was famously going to unbundle the bank. Three years ago, we were still debating if they were friends or foes. However, fintech has not (yet) posed a significant threat to bank revenues. That is coming from digital payments destroying fees, from social, chat or e-commerce platforms entering financial services and blockchain(eventually) disintermediating the bank.
Fintech and banks are fast becoming friends. Fintech are pivoting to become BancTec providers. They are leading productization of banking—creating innovative digital journeys on modern stacks that banks can “plug and play”. They have expanded the art of the possible and motivated banks to do better. They have trained up talent that we gladly acquire.
At Siam Commercial Bank, we embrace fintech. We set up a $100m dollar fund that invests in fintech. In addition, Fintech powers elements of our customer or employee experience e.g. the tool that our corporate RMs use to build their knowledge, provide peer benchmarking, and offer product advice to a customer in underpinned by 4 products. In another case, we replaced a 2-year product development roadmap with a fintech solution we could integrate and deploy in 100 days.
Most fintech struggle to work with banks. There are three key challenges:
• Banks are not easy to navigate. Most fintech don’t have the relationship building sophistication to get to decision makers. We have often found that an exact solution to our problem was talking to a “wrong” part of the bank for months.
• New vendor on-boarding in a bank can take a year or longer and there may be stringent requirement on trackrecord, financial stability, performance guarantees and IT security. A relative newcomer is hardly expected to deal with this.
• Integrating with a bank can be complex unless the bank already has a reasonably well-developed API/ Orchestrator infrastructure.
On the other hand, banks have some complaints against fintech too:
• Sadly, most fintech are just not that innovative or differentiated.
• At the minimum, a bank would need to see a production track record, an independently audited penetration test and a provision for code escrow in case of bankruptcy. These are table stakes to even start a conversation. These are not always readily forthcoming.
• We frequently meet fintech providers that are not well prepared, not responsive or “have bitten off more than they can chew.”While overreach is expected from an entrepreneurial outfit, lack of professionalism spooks us. No CIO wants delivery risk.
Bank and fintech partnerships can accelerate time-to-market and reduce costs
What can banks do to work better with fintech?
• Increase your sensing capabilities. Most banks have tried hackathons, sponsored fintech festivals, or started a fintech fund. We use two additional approaches. First, we lay out an end-to-end vision for a journey we want to digitize, and then search for fintech that can plug in. Second, we constantly expose senior management to innovations to spark ideas.
• Experiment with fintech first in areas that don’t require integration. It makes procurement, testing, and deployment much easier. Our first foray into fintech was a standalone SME ecosystem for capability development, networking, and deals.
• Reengineer your procurement process. There is no way around it, and it requires C-suite, or even board buy-in. Speeding up the process without compromising governance is critical to rapidly onboarding fintech. The fastest fintech we have onboarded was 8 weeks.
• Become easier to integrate with. Having a solid middleware/API layer is critical to rapidly absorb innovations.
What can fintech do better to work with banks?
• Get curated. Some advisory firms have developed fintech practices that shortlist fintech for Banks. These firm have experience in finding decision makers and positioning the innovation in business terms, and credibility in terms of handling regulatory, compliance or change management aspects of implementation. Fintech can “borrow” this credibility.
• Get focused. Pick a few banks as targets. Don’t spread yourself too thin. Avoid mega-banks and focus on single country dominant players. It makes life easier.
• Get a track record. Having a B2C model operating in a well-regulated market like Singapore or Hong Kong helps in convincing banks about B2B distribution. Having 3 years and 3 live installations under the belt overcomes the due-diligence barriers of many banks.
• Become more professional. This does not mean investing in a suit or tie, but investing in knowing the market, knowing the bank, being upfront about limitation of your product or team, and keeping promises.
Bank/fintech partnership can accelerate time-to-market and reduce costs for a bank; and give scale and marketing reach to fintech. A pharmaceutical industry like model of innovation is emerging where small players innovate and larger players integrate and market the innovation. Both parties must change for this to work.