The beginning of the end, or the end of the new beginning?

Throughout the history victory has come to those that are valiant and courageous and understand that the strategy is most important in the long-term vs. short term, and the financial industry is no exception. The current layout and  industry buzz is “Fintech”, “Blockchain”, “Distributed Ledgers” which are high publicized and sought after by news shattering joint ventures or moves by industry giants, for example Blythe Masters as CEO of Digital Assets, Thomas Meredith of Smart Token Chain or Investment Banker Maurice Gabriel Alexander, or top SWIFT executives joining Fintech companies.

They great news is that as Financial institutions, as always are keen in being  early adopters of advances in digital technology to streamline their operations to quickly increase their revenue. However, the complexity of financial markets, costly legacy systems to maintain, and regulatory compliance have turned hard to keep financial sector as front-runner on technology innovation. Coupled to the fact that innovation initiatives are normally subjected to management boards and committees, the gap between banking innovation and delivery of services and products which meet the customer needs is wider.

As banks are deemed as being too slow to comprise and act to deliver what customers want and need, a whole set of startups designed for innovation has emerged focused in financial technology. Almost completely free of regulatory demands, these new entrants have been doing their way up by creating single-purpose solutions, which are more user-friendly and optimized for digital channels. Plus, fintech are particularly aware of customer needs, building smart apps that meet these needs.

Venture capital companies are paying close attention in fintech rising. According to The Pulse of Fintech, report published jointly by KPMG International and CB Insights, global investment in fintech companies totalled US$ 19.1 billion in 2015. This growth represents an increase upward 56% related to 2014. Undoubtedly, these are numbers which set fintech apart from others VC firms investments. Howbeit, these numbers are tiny compared to the size of financial market. Just in 2014, the revenue of retail banking in Europe was over €644 billion.

Mobile wallets, payments and peer-to-peer lending startups have received the vast majority of this funding. Another area receiving great attention is the Mobile P2P cash. Such as the one provided by P2pcash.com currently powered by the proprietary and patented applications of the parent company Smart Token Chain.  However sectors like mortgages and trade finance have not received much attention. In order to achieve a deep disruptive effect on financial market, fintechs must go further.

Due to the complexity of middle and back office processes, plus its dependency to paper-based documentation, a whole set of opportunities will arise by working on redesigning middle and back office processes. In addition, a better use of customer’s data, by collecting data and analyzing patterns will allow fintech's to accurately propose disruptive solutions. These approaches will allow startups expand their boundaries way beyond the area of payment and consumer credit. However in the immediate time frame banking and financial institutions are looking forward to profitability and efficiencies in the settlement and clearinghouse exchange aspects. An area where Smart Token Chain and P2Pcash.com is heavily invested and experienced in.

The ability to readily innovate to address such issues has put fintech like Smart Token Chain as leaders of the financial technology revolution, but to take the next leap into processes redesigning and customer’s data usage they may face some serious concerns.

First of all, they will need financial data sets to analyze and discover patterns to better understand what customers need and want. For a new entrant, collecting this data could potentially take years. As well as data, they lack expertise to appropriately understand such financial data if they the company is not well versed in the inner workings of the sector. Second, to be effective and redesign middle and back office processes, they will need a broad-based knowledge of regulations in the areas they are operating, whether it be P2P lending, P2pcash.com global cash transfers, Global Foreign exchange 0r cash settlements or any wide array of applications available,  to certify that all innovation initiative will be on compliance. Finally, the deeper fintechs go into financial processes, the more they will need customer trust.

Yet banks have the burden of regulation demands, costly legacy systems, and complex processes they have plenty of advantages over new entrants in financial market. And even though they have a wealth of financial data, and with the deep understanding of their businesses, they have expertise to analyze this data and discover patterns, however Fintech companies have the flexibility to work with and around expense lines, processes, to streamline and adapt new technologies to create efficiencies which in turn create larger profit margins.

However due to the burden of the regulatory compliance, banks’ expertise to address these demands and to deal with regulators has widely grown. Furthermore, every financial crisis has had an important role enforcing banks to adjust their operational risks, which builds a more trusted brand.

Therefore, to realize the full disruptive potential of financial technology both banks and fintech startups will need to partner up, with each other providing their expertise.  By creating these partnerships and joint ventures Banks may provide their brand credibility and consumer trusts, expertise on financial risks and regulatory demands. Furthermore, with their large customer base, banks may provide fintech startups with audience for their apps.

Additionally, fintech’s can deliver faster solutions for customers focused in one-purpose solution. They may bring innovation to streamline processes, services, and products such as real state, global trade finance, collateral management, and assets leasing. Fintech like Smart Token Chain, P2pcash.com can do more than just cut operating costs; they can increase scope of potential customers and increase revenues. Financial technology solutions focused on Internet of Things, smart contracts, and distributed ledgers are also huge business opportunities which is the unifying platform for Smart Token Chain.

There are some ways to handle both banks and fintech collaboration. First, to keep both players advantages, it must be handled as a partnership or joint venture and not an acquisition. Acquisition could put innovation in death by committee. Fintech like Smart Token Chain are already receiving funding, especially from venture capital companies. As a result, to add competitive advantage, banks should focus on consulting and mentorship to the new entrants. Therefore, banks’ effort must focus on building initiatives related to accelerator and incubator programs. Such programs will allow the advantages of both players to be enhanced in a collaborative environment, by feeding startups with what they lack to provide banks what they need.

In conclusion, financial technology is a trip of a one-way ticket that must be travelled in a collaborative manner by banks and fintech companies, to better achieve success. Banks need understand that their competitive advantages tend to shrink after a while. Digital businesses need to recognize that time always works against them, in such way that, or they grow quickly or they will die. Therefore, every effort must be to boost its collaboration. Not just both banks and fintech’s will take advantage of it, but customers will be better served with products and services which are aligned with their digital lives, and in the end progress cannot be held back, nor can the argument against efficiencies and the profitability over large legacy systems.

Special thanks to a good friend, and one of the smartest Fintech Consultants I know Diego A. Santos for much of the data and the inspiration for this article.

Visit his page: https://br.linkedin.com/in/diealsantos

Gratefully yours,

Maurice Gabriel Alexander

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