fresh thinking

The Fintech Ecosystem: Beyond Startups

Soumik Roy, 7th October 2016

Fintech isn't just the domain of young and nimble startups. Large banks and financial institutions have also successfully melded cutting-edge, sometimes bleeding-edge technology, with business operations and offerings. DBS Bank's engagement with Watson, IBM's cognitive computing innovation, was announced way back in 2014. The following year, Charles Schwab announced an online Robo Advisory platform, which accumulated total assets of about $5.3 billion within a year of its debut.

Executives in the financial services space understand that fintech solutions can help reduce costs, differentiate the business, retain customers, and bring in additional revenues. They also have more than sufficient resources at their disposal.

The real question is: Should they aspire to build their own fintech solutions, or simply acquire the technology solutions it needs? Many strategists, including me, believe that the latter is better idea than the former. Some financial institutions agree and some don't. DBS, for example, has partnered with Nest to engage with the fintech startup community through boot camps and accelerators. There are actually more than a dozen other banks and financial institutions who're working with fintech startups right now, across the globe.

Disruption is on the anvil

The PwC Global Fintech Survey 2016 found that the consumer banking and funds transfer & payments expect to be disrupted significantly by 2020, followed by investment & wealth management and SME banking. This also highlights how fintech is using its most powerful weapon - disintermediation - to gain ground and grow quickly.

Financial services firms don't necessarily have a role to play in the growth of fintech firms, but they can definitely form synergistic relationships with them, if they so choose. Doing so will help fintech firms rapidly test, build, and scale valuable solutions that benefit the marketplace. The larger enterprises obviously gain an edge when they leverage the technology, often before their competitors can get their hands on it - if at all they can ever get their hands on it.

The sooner the firms realize this, the better. In the asset and wealth management sector for example, the PwC survey found that only half of the firms put fintech at the heart of its strategy despite a majority of them perceiving their business to be at risk from fintech firms.

India on the fintech front-foot

The land of 1.25 billion people is home to many thriving fintech startups. Paytm, Citrus Pay, Bill Desk, and PolicyBazaar are some examples. The opportunity in India for fintech startups is significant because of the large number of potential customers in the local market. Growing startups can quickly find the right talent at fair prices in the market because the country has a significant number of young people competent in technology and design.

The Indian government recognizes that such startups can create jobs, draw foreign investments and create value for the economy. To help them, it has launched several well-meaning initiatives and started many programmes. Local and international banks have also started many accelerators in the country to groom, mentor, and support these fintech startups. Some of the prominent ones are Barclay's Rise and Société Générale's Catalyst.

According to a report by the Global Fintech Hubs Federation published earlier this year, the next phase of these startups will be fuelled by blockchain and other distributed ledger technologies, continued progress towards digital financial inclusion, and improved payments systems. It is also expected that non-payment fintech companies such as alternative lenders and alternative credit rating agencies will rise, powered by artificial intelligence.

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