Incumbents, Challengers, FinTechs and BigTechs: working together for post-COVID banking success
Together with Euromoney, Banking Circle hosted a webinar to debate the challenges of the emerging post-COVID world, and how financial services providers can work together for the best results. Featuring a group of experts from incumbent and challenger banks, the live debate was hosted by author, advisor and commentator on digital financial services, David Birch.
As well as discussing life after COVID-19, the panel also debated the changing shape of the financial services landscape where traditional banks, FinTechs and TechFins must decide whether to compete or collaborate.
If you missed the webinar, you can watch on demand here.
It was encouraging to hear the participants from banks and FinTechs alike agree that the future is in collaboration rather than competition, the path Banking Circle has been encouraging for many years.
As Valentina Kristensen, Director for Growth & Communications at OakNorth Bank put it: “Historically, the relationship has been pictured as challengers coming in to eat the incumbents’ lunch. But I think we can all agree that if you’ve been around 200 years or more you’re not going down without a fight, and so we have seen much more focus on collaboration. FinTechs that enable incumbents and help them service their customers more effectively will do better than those trying to challenge the banks.”
Ģirts Bērziņš, Head of Digital Innovation and Strategy, Digital Banking, at Swedbank agreed, identifying that the current global crisis has brought about a ‘human revolution’ regarding growing consumerism and how we act towards each other. “Those who focus on how to steal each other’s lunch will lose, and those who ask what value they can bring to the ecosystem will be the winners. It will not be one single winner; it will be a winning mentality.”
Sibylle Strack, CEO of banking services provider, Kontist, reiterated the vital human aspect: “Who comes out of this crisis stronger is the service provider, incumbent or the challenger who is helping the customer during the crisis. Any player could be doing this well. It is about who you trust – that is the person or company you will do business with.”
Søren Mogensen, Chief Growth Officer at Banking Circle suggested the industry takes inspiration from how the crisis has affected consumers: “We must all take a step back, re-focus on the people we do this for, turn the conversation back to customers. I am intrigued by how things are changing. COVID-19 lockdown has brought about an increase in baking, DIY, sewing, for example. When you see sales of bread machines 6.5 times higher than the previous year, while camera sales drop by 64%, you know there’s a new reality.
“We also see permanent habits develop, like more people buying online. And when you do that while having noisy children in the background and you’re doing home schooling as well as trying to work from home, there is a shift – more demand for digital seamlessness, a cry for efficiency. This isn’t just consumer customers; corporate customers are of course also operated by human beings currently managing these same home working pressures. The financial sector hasn’t changed direction, but the evolution has been accelerated by a stronger shift to online. Whether it is a platform solution or challenger, the operator able to adapt to these changing situations will be the winner – not the strongest, not the fastest but the most adaptable.”
OakNorth’s Kristensen added that detailed, individual data is vital in the race to provide better, more personal services to business customers: “Banks have realised they need much more granular insight on customers, so they can look at businesses individually. Banks cannot lump all restaurants in one box, for example, saying that while we’re under lockdown all restaurants will be faring the same. Of course, they won’t.
“A fine dining restaurant will have a very different experience throughout this crisis versus a pizza restaurant. A pizza place can still do delivery, but no one wants to order a Michelin star meal online for home delivery. But fast-forward to social distancing in restaurants where customers have to be kept two metres apart, suddenly the fine dining restaurant will be in a good place because that fits with their business model, whereas the pizza restaurant could be having a tough time because their model was to cram everyone in and do very quick turnaround.”
Clearly, to deliver a good quality personal service, Banks and Payments businesses need a detailed knowledge and understanding of the business with which you are working. Only in this way will financial institutions know what their customers need, and work to provide a suitable solution.
A platformisation of the economy
With the reality of COVID-19 as the backdrop, the panel went on to discuss post pandemic financial services.
Tony McLaughlin, Managing Director of Transaction Banking at Citi, reminded us that this isn’t the first pandemic the world has fought: “We already live in a post-pandemic world. Looking back to previous pandemics such as Spanish Flu in 1917, historical analysis from around 1920 isn’t about how the pandemic changed the nature of competition. Instead it’s about the nature of technological change – the railways being replaced by road and air. Those technological changes are much more important factors in retrospect, compared to the Spanish Flu itself.”
McLaughlin went on to describe what he sees as the ongoing platformisation of the economy: “There has been an acceleration because of COVID – people are now interacting more than ever on digital platforms, including BigTech platforms. What is happening is that financial services are being built into platforms, and the question is who will provide those financial services – the BigTechs themselves, FinTechs or incumbent banks?
“We are at a turning point, the big story is the platformisation of the digital economy, but everything is up for grabs, and the winners and losers are yet to be decided.”
Strack, of Kontist, described a challenge faced by many banking providers: “At Kontist, we want to go in a completely different direction and not be seen as a bank. However, in order to have all the data that is required to handle a customer’s financial life you have to have banking accounts. We want to go much deeper into the financial needs of our customers, aiming for 20% banking and 80% value-added services around taxes and accounting. These areas add so much value, we ask if we still need to offer banking services.”
Are BigTechs the real threat?
A question from the audience led panellists to speculate on the rise of the ‘TechFins’, and whether these BigTech platforms are about to “crush the FinTechs”. With business models focused on earning profit through core services, tech giants can afford to offer loans or other financial services at low rates, even if that means they earn nothing from the services, or even if these services come at a cost to the business.
Kristensen was quick to confirm this reality is already evident: “BigTechs have chosen to partner with the big banks because the big banks have the most customers. They’ve not gone to the challenger banks because their customer numbers are too low compared with the top banks in the market. The reality is that the challenger banks are just not that interesting to BigTech players yet. The challenge is not BigTechs to incumbents, but BigTechs to challengers, they’re the ones in the most threatened position.”
McLaughlin believes BigTechs present an enormous opportunity for partnership, rather than competition: “The reality is that BigTech engineering resource is incredibly valuable and incredibly scarce. No one BigTech player will create a balance sheet big enough to support all of the potential demand. The future will be an amalgamation and an incorporation of FinTech services and bank services into BigTech platforms.”
Strack added that there are three types of service providers: “You have the FinTechs who usually have the idea but not the customer base; the banks who have the customer base but no idea; and the TechFins who might have both. Technically they are threatening to both FinTechs and banks, but the TechFins are much more dangerous to banks rather than innovative FinTechs with good ideas. If I was a bank, only doing banking services, I would be very careful now.”
Jimenez Zaballos of Santander was less concerned: “We’ve been hearing for a long time that the large techs are ones to be aware of, but the reality is they’ve had enough time to jump in to banks and kill them in one shot, but it hasn’t happened. The reason is that large techs like unregulated markets and low tax environments, and that is certainly not the case in banking. Also, they want to stay with ‘low touch’ banking services like payments and lending, rather than corporate and investment banking, asset management, insurance, private banking. They are not jumping into whole universal banking spectrum. They stay with specific parts that are less regulated and are connected to the value chain.”
Mogensen concluded the discussion, reflecting that this is simply an example of evolution in the financial sector: “Evolution has been accelerated by both COVID-19 and BigTechs. They bring challenge, perspective and energy to the sector. We have seen the big four launch their own payment system and that has pushed the evolution, it is keeping everybody on their toes and making sure that all of us make conscious choices on what our position is and where we need to place our bets. We can’t have 20 or 30 different strategic investment areas and try to be universally good across all agendas. Each of us must find out what’s our speciality, our platform, our position, and specialise in that. The BigTechs keep us on our toes, contributing to the evolution which is healthy for the financial ecosystem.”
The panellists on the webinar were:
- Ģirts Bērziņš, Head of Digital Innovation and Strategy, Digital Banking, Swedbank;
- Juan Jimenez Zaballos, Head of Financial Industry Transformation, Santander Digital;
- Valentina Kristensen, Director for Growth & Communications, OakNorth;
- Tony McLaughlin, Managing Director, Transaction Banking, Citi;
- Søren Mogensen, Chief Growth Officer, Banking Circle;
- Sibylle Strack, CEO, Kontist.
The webinar is available to watch on demand here.