Alliances between banks and financial technology (fintech) companies will continue to mushroom, as fintechs look to scale using bank balance sheets, while banks race to remain competitive in a digital world, says tech group Cisco.
Banks had initially viewed fintechs as a threat, but were increasingly seeing the benefit of working with them, Simon Blissett, head of Cisco’s financial services innovation practice, said on Tuesday.
Local banks and insurers are rapidly implementing digital technology. For example, Rand Merchant Investment Holdings has launched AlphaCode to identify and scale disruptive businesses, while Standard Bank acquired in 2016 a majority stake in Firepay, the team behind mobile payments application SnapScan.
This week, Sanlam announced it had launched a balanced fund that would be managed by a combination of artificial intelligence and machine learning.
A recent PwC survey of more than 1,000 banks, insurers and asset managers found that on average, 24% of revenue was thought to be at risk from standalone fintech companies.
Almost all the South African respondents expected to increase partnerships with fintechs in the medium term.
Banks had for the most part digitally transformed a narrow front-end layer of their businesses, but now needed to address legacy systems and enhance the agility of their back-end processes, said Blissett.
This was not least due to increased pressure from customers to make banking easier, more convenient and more personalised, he said. Regulators were recognising the benefit of slicker, safer financial services.
The European Commission’s second payment services directive would give payments companies access to accounts maintained by credit institutions, such as banks, effectively "pushing for open banking". This was premised on a belief that banks’ customer data belonged to those customers, rather than to the bank, and should be made available to third parties to whom the customer wanted to grant access.
Examples of this could include a bank being able to interact with government departments to quickly perform a "Know Your Customer" check. Similarly, having access to an estate agent’s database would enable a bank to pair house-hunting customers with homes they could afford.
Other commentators envisaged a world where banks would be "unbundled". This would see institutions such as Google and Facebook own the customer relationship, with banks providing products and balance sheet capability, and fintech companies controlling back-end processes.
"This is undiscovered territory for banks," said Blissett, who is talking to local banks and insurers this week about preparing for future models.