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HOW BANKS SHOULD BE APPROACHING FINTECH TO AVOID DISRUPTION

There's a lot of debate about banks; their involvement with FinTech startups and what that should look like to avoid being disrupted. I believe it should look like this (scroll to bottom of page)

New Internal Legal Entity: (Low Complexity)

If a bank has the required capabilities and already has a presence in the market, banks should setup a new legal entity internally and attempt to exploit the technology in-house (with some help from 3rd parties). Even better is, if this can be done with new branding in the early stages. This protects any reputational risk to the main bank and seeks to minimise the banks 'risk-averse culture' creeping in. As an example of this approach, think of National Australia Bank (NAB) and their 'spin off'; UBank

Joint Venture: (Medium Complexity)

If a Startup can execute better and the technology is gaining some market traction. Banks should consider a JV to leverage the FinTechs expertise. Think of Jamie Dimon's comments on JP Morgan partnering with a P2P platform 

“The kind of stuff we don’t want to do or can’t do, but there’s somebody else who can do it and do it probably well. So this is going to be collaborative.” (Jamie Dimon's comments on JP Morgan partnering with a P2P platform)

Acquisition: (High Complexity and Highly Desirable Tech)

Where there is a large amount of complexity (particularly in new markets). Acquisitions are a practical long-term way to establish a permanent presence in the market. Banks are in a financially sound position to acquire almost any FinTech startup of choice. 

 

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Disruption in Retail Banking

Growth in internet and mobile technologies has transformed many industries and economies. The market forces and competitive landscape has completely changed in many sectors. iTunes has fundamentally changed music industry, Amazon has driven most big brick and mortar book sellers out of business, Expedia is one of the worlds' biggest travel company….. the list goes on. Internet and mobile technologies are big disrupters for most industries. What started (and tapered a bit!) with the dot com boom of 2000 has become a lethal threat to most business models today. Powered by mass adoption in mobiles phones, proliferation of smart phones and cheaper band-width, internet and mobile technology have changed many industries. The banking industry in has been dominated by a handful of big global or regional banks for 100s of years. While the credit crisis has shaken this industry, the core market forces for the industry have not changed. Will Innovation in Internet and Mobile technologies disrupt retail banking? Will there be 5 new names in global top 10 retail banks in 2020?


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