Despite underwhelming past experience of bank/fintech collaborations, the current pandemic is likely to drive deeper relationships between incumbent banks and startups as legacy applications prove unfit for purpose in a digitally-empowered future.
Both banks and fintechs are currently frustrated by the lackluster results of their collaborations to date, according to CapGemini's annual World Fintech Report.
The study reveals several pain-points:
• Only 21% of banks say their systems are agile enough for collaboration
• Only 6% of banks have achieved the desired ROI from collaboration
• 70% of FinTechs don’t culturally or organizationally see eye-to-eye with their bank partner
• More than 70% of FinTechs say they are frustrated with the incumbent’s process barriers
• Half of FinTech executives say they have not found the right collaborative partner
“The world has changed dramatically over the last couple of months. Businesses will evolve and emerge from the Covid-19 crisis in different and profound ways," says Anirban Bose, CEO of Capgemini’s financial services practice. "For traditional banks, this will translate into an even greater need for digital experience through further collaboration with fintechs. Effective collaboration requires people, business, and process maturity.”
Bose says that incumbents must invest in middle- and back-end operations to deliver a better customer experience, working with innovative startups to improve data retrieval and provide a more agile and reliable front-end.
Capgemini’s 'Open X Readiness Index' is a global benchmarking tool that measures the readiness of banks to effectively collaborate at scale with startups by measuring their maturity across people, finance, business, and technology pillars.
Featured in the World FinTech Report 2020, the index shows that leading collaborative banks are those with a dedicated and autonomous startup-partnership team and who demonstrate a fail-fast innovation approach to determine value and cut losses quickly. Readiness frontrunners are also early movers that invest in emerging technologies and have little dependency on legacy systems, making fintech integration easier.
A recent report from VC FInch Capital suggested that the current crisis could ultimately end up benefiting the fintech industry by accelerating the rush to digitisation. A more downbeat assessment from Rosenblatt Securities forecasts that, as funding sources dry up, struggling fintech firms may be forced to seek collaboration, investment, or acquisition by traditional financial institutions, PE funds, or even non-financial strategic buyers.