Financial institutions bank on FinTechs to deliver digital services
Do experimentation and banking go hand in hand? Lately, consumer demand for more digital services means that banks and credit unions must be ready to explore new approaches.
A McKinsey report predicted that banks who don't get digital right will lose as much as 34% of their profit and those that get it right will see gains of up to 40%.
Banks no longer ask, “should I invest in digital?” Instead, they ask “how do I deliver the best digital services?”
Banks got into digital early, which created consumer trust in their ability to provide secure services. But now consumers want the agility of tech firms and startups, and banks don't operate that way, at least not yet.
So, they’re taking a variety of approaches in their effort to stay competitive. Some are buying new enterprise software, some are developing their own applications while others are partnering with FinTech. Smart banks are also delivering first-in-class services at each branch.
Banks outsource digital services
With an out-of-the-box software solution that meets clients' needs, banks can leave the development of software to the experts. But, no single solution will meet all of the current and future needs of any organization. Banks that want to buy should choose solutions with omnichannel customer functionality – or at least good mobile banking tools.
Scotiabank found a creative way to buy. In 2014, the bank bought digital-only ING direct, and then rebranded it as Tangerine.
Banks create tech labs
Big banks in Canada have launched new technology labs to build their own digital tools. These workspaces all mimic the culture of startups, providing office layout and amenities intended to lure technology talent away from the likes of Google.
The Royal Bank has Innovation Labs in Toronto, London, Luxembourg, New York, Orlando and the Silicon Valley that are working on biometric authentication, artificial intelligence, and big data.
Scotiabank's Digital Factory includes technology teams in Canada, Peru, Chile, Mexico, and Columbia. The Tangerine division is developing voice-activated banking.
CIBC has partnered with MaRs Discovery District in Toronto to create a corporate innovation district, where developers have worked on projects such as CIBC's Apple Watch app.
Banks partner with FinTech startups
Not every financial organization has the resources to set up a technology lab. But even smaller banks have something that start-ups lack: consumer trust. This is why banks and credit unions are joining forces with FinTech start-ups.
B.C.'s First West Credit Union, Manitoba's Westoba Credit Union and Conexus in Saskatchewan have all partnered with Grow, a peer-to-peer lender based in Vancouver.
Credit unions like Montreal-based Desjardins have gone beyond partnership and are financing FinTech companies through venture capital investments in innovations labs.
Fintech partnerships are not only for banks that can't afford their own tech labs. Big banks are partnering with FinTech as well. CIBC has partnered with Thinking Capital, an alternative lending start-up, TD has partnered with Moven, a mobile-only banking start-up, and RBC has partnered with Nymi for wearables that will verify accounts by heartbeat. These are only a few examples.
Partnering scales up on the tech side, too, with Apple Pay partnering with TD, CIBC, RBC, Scotiabank, and BMO. Android Pay is expected to be available in Canada in 2017.
It’s evident that no organization is banking on a single digital service, but consumers and banks will both benefit from the effort to answer the question of how to deliver the best.
While striving for the best in digital is important, keep the physical branch in mind, particularly in rural areas. Now, more than ever, banks need a high-speed connection between all locations and head office. This way, clients can enjoy the same fast service in the branch that they access from their home or smartphone. Make sure your best-in-class banking services are delivered via fast, reliable fibre-optic networks.