As the likes of Apple, Facebook and Google – the ‘big tech’ companies – set their sights on financial services, the world’s banks are increasingly turning to fintech entrants to help keep them competitive.
Until recently, the major threat to traditional banking models appeared to be from the host of challenger banks and fintechs operating in the financial services space. But as the fintech-incumbent model moves towards collaboration rather than disruption, another source of disruption and threat is emerging. Big tech.
Earlier this year the IMF warned of a significant disruption to the financial landscape by the big tech firms, who can draw on their enormous customer bases, employee population and wealth reserves to offer smarter financial products and services based on Big Data and artificial intelligence.
Apple recently made headlines with the launch of their new credit card, while Facebook, not to be left behind, announced their ambitious though controversial digital currency, Libra. The banks and other incumbent financial institutions know that they need to change, and change fast. They need to become ‘digital transformers’ in order to compete with the ‘digital natives’ – a sentiment well expressed by Currencycloud’s Mike Laven at a recent industry event that we attended.
This was also a particularly loud and clear message at this year’s Sibos event, where Ezbob exhibited along with around 200 banks, fintechs and consultants. Sibos 2019, held at London’s ExCeL at the end of September, welcomed around 11,500 delegates who were keen to make sense of the new order of things.
Deutsche Bank’s CEO Christian Sewing, for example, told the assembled audience that Google, Amazon and China’s Alipay are all massively ambitious companies that are already taking considerable market share away from the banks.
Many of the attending bankers were at Sibos specifically to strike new partnerships with agile fintechs, which is often a more cost-effective solution than building up massive internal technology projects. Known as a ‘speedboat strategy’, many banks are working with specialist fintechs to trial new systems alongside their existing ones.
The reasoning behind such partnerships is simple. It gives the banks the ability to develop technological capabilities that can compete with a Google or an Alibaba without requiring the pre-requisite know-how.
There is also the regulatory angle. Because the banks are heavily regulated, and becoming more so with the likes of Basel III and CRD IV, joining forces with fintechs allows them to be bold and experimental with new products and services without adding more in-house risk.
Boost your lending armoury
At a time when SMEs are starved of credit as it is, banks and other financial institutions have also further cut back on loan origination due to the high costs of acquisition, delivery and servicing and the limitations of their own technology. This is a big worry, as Apple and its peers nibble away at a demanding customer base.
In response, more and more banks are working with Lending-as-a-Service (LaaS) vendors, such as Ezbob, to reverse this pattern and unlock a range of benefits, including increased profitability, reduced decision time and – crucially – a better customer experience. LaaS packages cutting-edge lending software, operated in the cloud (or on-premise) by the vendor, with expertise and often managed services included too.
A recent industry white paper published by LendIt highlighted that the lending software market was valued at US$2.6bn in 2017, with this figure expected to surpass US$5.5bn by 2024. LaaS is growing fast. It’s here to stay and we are here to help.
Get in touch today to see how we can help you to transform your lending experience to help you stay ahead of the curve.