While ‘Fintech 1.0’ and disruption made banks stop and take notice, ‘Fintech 2.0’ is all about letting banks in and allowing them to have a stake in the space. However, during Fintech 1.0, a lot of banks were forced to make what most in the industry saw as knee-jerk decisions, adopting questionable strategies. Most banks are still following the same strategies.
Quite a few bank CEOs view their banks as ‘technology companies with a banking license’. Yes, it’s not inconceivable that banks have a lot of developers.
Silicon Valley will be competing with us very soon. We are ready – JPMorgan, 2014
Successful banks in the future will need to be fintech’ companies as well, blending their financial services with specific technology aimed at their customers – Fidor Bank, 2015
Can banks transform into real software companies, or should they even be trying? Executives may be tempted to pitch this idea to board members, but the reality is that banks have very little say (or none at all) on how the standards for digital banking are defined. Fintech 2.0 has ensured that the playing field is in favor of fintechs and not the banks.
So, what should banks really be doing? Their focus should be on capturing and analyzing customer transactions with the new mobile channels before pivoting towards a fully digital relationship. However, this is where the C-word comes into play. While Fintech 1.0 was all about disruption, Fintech 2.0 is facilitating collaboration. If banks insist on shapeshifting into technology companies, and becoming banking platforms instead of an amalgamation of accounts and mortgage products, will they develop a corresponding ecosystem as part of a broader strategy? Would this be a transitional measure towards a more radical transformation? No. Although banks absolutely need technology to survive today and grow tomorrow, they still need to be banks!
Customers don’t want banks
Clearly, there is a case for demanding the abolition of banking as we know it. Fintech has already proved that it’s not a utopian idea. However, would this require the abolition of the state of affairs that needs banking? The bottom line is, customers don’t want banks! They want what the bank can facilitate and that’s ‘rocket fuel’ for fintech. But what does the banking system do that we actually need? Currently, banks perform a number of functional requirements: management of money, access to money and the ability to purchase things with credit. For a consumer, the primary goal is ‘buying something’ easily, more conveniently, faster and cheaper. This means that ‘banking’ and ‘technology’ as an enabler of banking is tertiary.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.