Bank CEOs turn to FinTech companies to introduce next generation products and compete for millennial customers.
As bank CEOs realize the pressing need to introduce next generation products and refresh their brands to compete for millennial customers, many are turning to FinTech companies for solutions. Although strategies to buy, build, borrow or battle FinTech startups can be effective, banks should also consider developing their own innovation cultures from within, to create a lasting competitive advantage.
For some time, banking leaders have understood that competition is not what it used to be. With product commoditization wearing down their returns, and public trust in the banking system waning, they appreciate that they must inject fresh innovation into their institutions to generate new sources of value, and fortify themselves against a multiplying field of disruptive competitors.
Bank chief executive officers (CEOs) have urged their boards to make innovation a priority and, rather than simply resisting the fledgling new competitors through regulatory battles and pricing wars, they should instead consider working with, or acquiring, the startup innovators, to improve their competitive footing. This viewpoint was reinforced by a recent KPMG publication, FINTECH 100 – Leading Global FinTech Innovators Report, which observed that venture capital invested is a relevant measure of innovation, which in turn fuels enduring competitive advantage.
There are abundant examples of banks dabbling in the FinTech landscape, including investments by Goldman Sachs, Citi Ventures, JPMorgan and Morgan Stanley in Square, a payment solution that ranked in 13th spot in the KPMG report.
Bank activity in FinTech sector to date can be grouped into one of four basic approaches:
As an alternative to the FinTech strategies above, banks might also consider sparking innovation within their own organizations, and drawing upon the collective wisdom of all employees to help reinvent themselves and improve client relationships. To do so:
Lately KPMG member firms have been working with financial services clients to develop and install innovation in these ways, by involving more people in new idea development, and using technology to better allow the exchange of ideas and manage the knowledge generated. These programs, that make use of smart social software to connect people and ideas, have produced an astounding flow of innovative thinking, and enabled fun, challenging participation among employee populations, to effectively create one global brain.
While FinTech companies may be today’s "express route" to help a bank bolt innovation onto its brand, a greater emphasis on revitalizing a bank’s internal culture, to empower employee creativity and invention, may produce longer-lasting dividends.