New frontiers in fintech

2017 has been the year in which fintech matured, shifting from niche to one of the driving forces shaping financial services. There can be no doubt of how much more will come from this space, whether driven by start-ups or from institutional innovation in response. To better understand these trends, this week, Teamspirit co-hosted the next in our panel event series with The Financial Services Forum.

The theme was whether collaboration is going to live up to the hype and drive acceleration in the sector. The excellent panel represented institutional and fintech perspectives and included Murray Raisbeck, Global co-lead of KPMG’s fintech practice; Ishaan Malhi, Founder and CEO of the UK’s first online mortgage broker, Trussle; Richard Thompson, VP Open Innovation Programmes, Barclays; and Scott Sinclair, Chief Commercial Officer at digital wealth manager Moneyfarm.

What is clear is that collaboration is viewed highly positively from both early stage companies and large financial institutions. But, for it to truly deliver on both sides of the partnership the panel agreed it had to have clearly defined objectives, strategy and an evaluation framework. According to Scott Sinclair, this goes part way to mitigating the risk of the differences in scale and governance requirement that brings a danger of a large institution overwhelming a start-up and potentially delaying their opportunity to build their business. In Ishaan’s experience this relies on expectation management, particularly around the pace of delivery. Too often institutions believe they can ditch legacy systems and innovate faster than they can, while fintechs think they can scale faster than they can leaving any partnership at risk of failure.

Referring to Barclays’ experience, specifically with the RISE programme, Richard Thompson explained that one of their key learnings was the need to agree partnership principles so that the institution selected the ‘right’ fintech according to their strategic business challenges and opportunities - for example to address an area where they are not delivering for customers currently. To make this happen, and ensure partnerships become part of their overall strategy, Barclays has a senior sponsor within the organisation driving relationships with fintech firms. Defining a strategy requires those in the partnership to have a clear purpose that in turn allows each to identify where there is opportunity to collaborate. For Ishaan Malhi this is critical to ensuring any partnership has the customer at heart and explains that Trussle’s partnership with Zoopla is based on a shared vision to remove friction from the process of buying a home.

While collaboration has the potential to deliver scale and open new customer opportunities for institutions and fintechs alike, a barrier to success is the approach to customers. Fintechs and challenger banks are resetting customer service expectations which, while positive, requires established institutions to evolve quickly to avoid being left behind. This is brought into stark focus by considering attitudes to customer data. As Murray Raisbeck described it, institutions seek to ‘own’ the customer relationship end-to-end but a customer never wants to feel owned. For Scott it evoked Stockholm syndrome, with an institutional focus on owning the customer, holding on until they love them. Fintechs typically are established around the customer and as a result create businesses, and form partnerships, to answer customer need rather than ‘own’ them.

Looking ahead, KPMG will publish next month its ‘Pulse of Fintech’ global study which includes analysis of institutional attitudes to fintech and views on the potential for new entrants, particularly the technology giants, to enter the space. According to KPMG, 81% of institutions want to work with fintechs, compared to 50% who would consider working with technology giants. When it comes to the level of risk that entrants such as Google or Amazon pose to the financial services sector, there was a mixed view. Overall, there is a risk of threatening market share for financial institutions and fintechs alike but it could also bring opportunity. In Scott Sinclair’s view, tech giants typically aim for acquisitions when they enter new markets, rather than developing services themselves and therefore it is unlikely they would directly challenge fintechs or incumbents, but they could bring a new wave of growth capital.

Collaboration is certainly one of the key forces of change in fintech, but more widely it is bringing change for the sector as a whole. Many thanks to the panel speakers and also to The Financial Services Forum.