The banking and insurance industry is currently undergoing a once-in-a-generation transformation. The low interest rate environment, new entrants, digitalization, as well as the plethora of regulatory reforms are putting market participants under ever-increasing pressure. To remain competitive, incumbents must be innovative, cut costs and comply with complex regulations all at the same time. For financial institutions this is especially troublesome. The past shows that banks and insurance companies have always struggled to cope with changing competitive forces and failed to deliver on new services and products in a timely manner.
Whilst in the past, banks managed to adapt just in time, they are now faced with a new breed of competitor – the Googles and Facebooks – that not only have innovation embedded in their corporate DNA, but also control the necessary financial resources to turn their visions into reality.
Another new and increasingly serious competitor are fintechs. These rising start-ups have an innovation mindset and are best-in-class at blending digital technology with traditional banking services. Nevertheless, the adoption rates of fintechs still lag their counterparts within other industries; and a dominant digital player, like Amazon in the book market, is nowhere to be seen.
Looking closer, it becomes apparent that fintechs commonly lack three critical success factors: clients, data and capital. Banks, alternately, typically excel in these areas, yet struggle to incorporate digital innovations into their service and product portfolios as well as in back- and front-end processes. Following this logic, it seems only sensible to foster a collaborative approach between banks and fintechs.
Of course, this is not a novel idea and many proof-of-concepts have been conducted. Yet failure seems to predominate. The reason for these disappointments are diverse and the devil is in the detail; however, a recurring issue is the mismatch between company culture, organizational structure, and speed of progress. Collaborations might appear logical from the standpoint of complementary expertise in payments, financing and banking technology but, in practice, they break apart due to the banks’ protracted decision-making processes, different risk appetites, and certain communication problems. For example, fintechs often report feeling misunderstood and dismissed by their counterparties – which a recent BearingPoint study examining the bank-fintech relationship also captured. This suggests that to foster a gainful dialogue, it is imperative to build bridges to overcome the apparent communication and cultural gaps.
BearingPoint is ideally placed to assume this role of “cultural intermediary”. On the one hand, BearingPoint has decades of experience and deep expertise with banks and insurance companies, including of their internal processes and culture. On the other, it has developed close affiliations with fintechs through BearingPoint’s venture engagement programs. Straddling these domains enables BearingPoint to identify potential collaborations that are relevant and sustainable, and then to also strongly support the strategic ambitions of banks and fintechs alike.