Bâton Global has extensive experience studying the financial services industry and understands the shifts in the environment resulting from FinTech. Combining our academic research and industry expertise, we’ve advised clients by providing specific strategies to update their business models and prioritize digital initiatives to stay agile and proactive to better compete in this constantly evolving sector.
Technological innovation in the financial services sector has been particularly rapid and pronounced in recent years. The introduction of FinTech has allowed consumers to enjoy ever more personalized and convenient service platforms as businesses and banks benefit from the efficiency and cost-savings of these innovations. That said, banks and traditional financial service providers face a number of challenges in their efforts to harness the benefits and transformative potential of FinTech innovation.
Many people have heard of “FinTech.” They’ve maybe even used the term a time or two in meetings. But the meaning of the term is a little blurry and can mean different things to key stakeholders. Therein lies the problem.
At B|G, we know it is beneficial for financial service providers to clarify their specific understanding of FinTech to facilitate better strategizing sessions with key stakeholders. If decision makers never agree on a set definition for the term then the meetings won’t be productive. Broadly defined, FinTech is a new financial industry that applies technology to improve financial activities. By defining FinTech, we are able communicate clearly and drive meaningful action throughout the firm.
FinTech disrupters are always developing new technology with the potential to be so sophisticated and popular that it replaces current services offered by financial service providers in the blink of an eye. It has been estimated, by 2020, incumbent banks could lose 20-30% of global business to FinTech startups.
To provide an example, Citi Research analysts noted new FinTech entrants are targeting banking where it’s most profitable – small and medium enterprise (SME) banking, which accounts for roughly half of the industry’s profit pool. To attack SME banking, Lending Club created a peer-to-peer online lending platform where nearly $16 billion in loans originated through its platform in 2015. They’ve become so popular that they’re expanding their offerings to include small business lending. Although just one example, it’s clear FinTech entrants are attacking traditional financial service providers where it hurts - in the margins.
To counteract this, firms must be agile and proactive. They should be continually pursuing in-house innovation through internally-driven research and development initiatives. In addition, firms should systematically monitor external FinTech developments, specifically looking into key changes in FinTech offerings, whether these changes have substitutive potential for current service offerings, and assessing the long-term consequences and structural impact of these changes.
At Bâton, we emphasize driving in a culture of continuous improvement to support the development of a firm’s dynamic capabilities. We believe the ability to change in response to emerging opportunities is the only remaining competitive advantage.
Among major global banks, nearly three out of four managers believe they only have an opportunistic or fragmented strategy to deal with digital innovation. Digital is clearly not prioritized. But the focus is too often “How can we implement the latest technology?” rather than “Does the latest technology fit into our long-term strategy?”
Firms need to update their business models to emphasize innovation and pursue a comprehensive digital strategy. It’s important to have an “inside-out” approach that first examines how FinTech innovations can help meet your strategic objectives, rather than trying to incorporate every new tech fad into your existing strategy. To further prioritize digital initiatives, firms should engage in a structured strategic management process to ensure that digital initiatives are an integral part of the overall picture and not just bolt-ons.
Baton Global’s clients have updated business models and organizational structures designed to prioritize FinTech initiatives and encourage collaboration.