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IBS Journal August 2016


31


Although the compliance hurdles for new entrants are currently still lower than those governing banks, they nonetheless must understand and account for various local, regional and global regulations regarding money licences, data protection and so on, if they wish to upscale their niche offering into a widely-used global service.


What’s more, to bring innovation to a mass market of financial service customers, an innovator is likely to require an institutional partner through which to access an established customer base, key market insights and a robust payment infrastructure. Finally, new entrants may need to leverage a bank’s customer trust in order to attract and reassure customers – a reputation that, when it comes to security, privacy and data protection, is earned over decades.


Given these circumstances, a strategic partnership between a FinTech and a banking provider has a lot to offer both, negating weaknesses and amplifying their strengths. The impulse to innovate and fresh approach of an organisation unfettered by cumbersome legacy infrastructure or traditional business models can be combined with a bank’s customer base, global infrastructure and regulatory expertise. As such, many successful FinTechs attacking corporate banking space are embracing “coopetition”, sidestepping banking basics by relying on established institutions to fulfil loans or provide the payments backbone for credit card or foreign exchange transactions.


With highly automated, scalable, software-based services and no physical-distribution expenses (such as branch networks), these FinTech ‘attackers’ have a significant cost advantage and can often therefore offer more attractive terms than banks. Also, they are able to leverage advanced data analytics to experiment with new credit-scoring approaches, and mine social media to identify shifts in customer behaviour.


So far, technological change has been propelled in retail banking by the consumer online shopping revolution and proliferation of smart devices, but the next waves of digital revolution will come in B2B


transactions. Online sales estimates for B2B revenues in 2020 are predicted to double those of B2C, with greater scope for innovative financial technology. This will be further accelerated with the proliferation of the Internet of Things; in 2025 more than 80 billion devices will be connected to the web – communicating machine to machine, making decisions, automatically initialising payments and empowering end-to- end digitised supply chain finance solutions. The underlying technology for these solutions – which will support treasurers and supply chain managers – will come from co-opetition between banks and FinTechs.


This change will be customer-driven as CFOs and corporate treasurers will require, on the device to hand, a real-time overview of their group’s cash positions, purchases, deliveries and payments globally, as well as data around FX transactions, tailored analytics, and automated advisory. This revolution will bring value- add for the client and new revenues for banks and FinTechs, but will likely be more challenging than in B2C. As such, this market need is best met by strategic alliances of previous rivals, with banks and innovators combining cutting edge innovation with traditional expertise and customer trust.


www.ibsintelligence.com


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