Legacy Banks Must Leverage FinTech Partners to Build a Digital Banking Future
Banking in the Third World is going mobile. Financial institutions must adapt if they want to survive, as their customers are already playing leapfrog, skipping lots of steps as mobile technology becomes ubiquitous. The most efficient path to thriving as a legacy financial institution in the developing world is to embrace the explosion of technological innovation that is pouring out of the worldwide FinTech industry, instead of trying to innovate in competition with that wave.
Large financial institutions have the advantage of history and scale over upstart financial innovators in any market. People are careful about to whom they entrust their money. Solidity and tenure carry a lot of weight with consumers. Solidity and tenure also weigh a lot, however. Solidity means lots of physical presence (locations, agents, marketing/branding) which carries a lot of overhead. Tenure brings with it the weight of legacy systems. Old computers systems that are hard to replace, given the complexities of data protection; service delivery that can’t be put a risk by disruptive innovation; overstaffing; government “involvement” that adds all sorts of inefficiencies.
All that weight is a drag on the ability of financial institutions to do business in less developed communities where the volume of money flowing around is low. Massive legacy overheads put a floor under the size of transactions that are profitable.
FinTech solutions that can be bolted onto the legacy systems without system-straining integrations offer a path to creating lower-overhead initiatives that can break through that transactional floor and make a lot more small-scale business opportunities viable.
In CapGemini and BNP Paribas’ most recent World Payments Report, these esteemed industry analysts made the point that speed of adoption will be achieved through partnerships with innovative FinTech start-up ventures, rather than by competing with them.
World Payments Report 2017 from Capgemini and BNP Paribas
The World Payments Report 2017 (WPR) by Capgemini and BNP Paribas examines the new payments ecosystem, which is being…
“The blockchain technology is expected to play a major role in the future of digital payment processing solutions. Anirban Bose, Head of Global Banking and Capital Markets for Capgemini, explained that, ‘Within this new and dynamic ecosystem, payments industry participants must strategically reassess their roles… Banks must embrace this opportunity to enhance their offerings in collaboration with FinTechs and third-party developers. Breakthrough technologies and significant industry advances, such as Open APIs, instant payments, blockchain, and regulatory standardization, will encourage collaboration.’”
That same CapGemini report predicts that by 2020, there will be 726 billion digital transactions worldwide (a curiously exact number), and that “volumes generated by emerging economies will grow by 19.6%, which is about three times the rate of mature economies.” FinTech solutions, like our own BitMinutes smart token technologies, will lead this expansion by breaking down the legacy limits that inhibit rapid growth.
Financial Institutions will follow Silicon Valley and Big Pharma into Acquisition Mode
Google, Facebook and other Silicon Valley behemoths have been buying up innovation for years. Big Pharma has outsourced much of its R&D to independent ventures, which they in turn buy when the products prove viable. Why should financial institutions that need to modernize and digitize their operations not take several pages from those two books, and become smart acquirers of the tools they need? Indeed, one could argue that banks are the facilitators of M&A in the capitalist world, and so should best how to rate likely partners and acquisitions?
At BitMinutes we see great value in creating the wider financial marketplace that can open up economic activity among the 2 billion people living in communities that the current financial system cannot profitably serve. We look forward to helping legacy financial institutions lift a great weight from their shoulders!