Three-quarters of the survey respondents see an increased focus on the customer as the top impact FinTechs have on their business. But while customer orientation is a weak spot of traditional banks, it is a position of strength for start-ups. New entrants have identified customer frustrations as an opportunity and are building solutions to address these, while traditional banks are still lagging behind in delivering incremental improvements.
This may explain why competition between banks and new entrants is beginning to give way to direct collaboration. Banks are the most active of all financial sectors in partnering with FinTechs. Almost half (42 per cent) of the banking respondents in the survey say they are engaging in joint partnerships and setting up venture funds to finance FinTech companies.
In Ireland, key variations from the global findings include:
• Irish banks see increased sophistication, solutions to improve operations and self service tools as trends that are more important than global banks; Irish banks are also more likely to respond to these trends compared to their global counterparts.
• Digitisation of cash and transaction services is also a trend which is more important for Irish banks and to which they are more likely to respond.
• Irish banks are far more likely to respond to blockchain technology compared to global counterparts.
Customers want convenience, personalisation, accessibility and ease of use. To live up to these expectations, banks and FinTechs should focus on opportunities that leverage each other's strengths, whether in product design and development by start-ups, or distribution and infrastructure capabilities by banks. FinTechs are great at offering product simplicity and seamless integration but they lack the proper IT security and regulatory certainty that banks have.
We see both sides coming to the realisation of a new, mutually beneficial relationship - and it is ultimately the customer who will benefit the most from this.
While cooperation between traditional banks and new entrants is important, it is still early in execution and agreeing on optimal ways of working can take time.
Meanwhile, banks should continue to prioritise the simplification of products and services to reduce client confusion. In parallel, it is crucial that banks design products around customer expectations, learning from the many industry disruptors that have made headway in other sectors, from transportation to leisure to media. Finally, banks should attempt to retain customer primacy in the face of competition from disruptors, harness the richness of their data to tailor marketing campaigns for discrete segments and introduce and trial new service offerings that will generate non-interest and ancillary revenue. These actions must be taken regardless of the FinTech-caused disruption.