The financial services industry today is characterized by change. Investor interest and capital is pouring into fintech companies – digital banks, insurtechs, wealthtechs, proptechs and every option in between are shifting how financial services are created, offered and evaluated.
New changes, new challenges
This shift has spurred many traditional financial institutions to take action. Yet, changes aren’t always straightforward. Financial institutions know they need to embrace innovation, and they also have to find better ways to understand and respond to their customers.
At the same time, the shift has put a spotlight on a new area of opportunity for big tech companies like Alibaba, Apple, Google, Tencent and others. These companies have incredible reach, deep roots into their customers’ lives, and robust customer data. Big techs are also constantly looking for ways to provide their customers with more value, to enhance customer loyalty by providing a more integrated ecosystem. Most already offer payments solutions, so extending their offerings to include financial products makes sense. However, there are no strong indicators that the big tech companies want to become banks. The regulatory burden is so far considered too high for their appetite1.
Forging strategic alliances
Big tech and financial institutions are already investing in fintechs to help advance their strategic goals. For example, Tencent led a $35 million investment in open banking focused TrueLayer in the UK this year2.
What they are realizing that partnerships don’t have to be limited to start-ups – working together with established institutions can create value. Over the past 6 months, there have been a number of strategic business relationships announced, such as Google’s partnership with Citibank and Stanford Federal Credit Union, to offer smart checking accounts3 and Apple’s announcement of a partnership with Goldman Sachs to offer the Apple Card credit card4. These will likely only be the beginning.
What they’re now starting to realize is that partnerships don’t have to be limited to start-ups – working together with established institutions can create value.
Making it work
So, what does it take to drive value from partnerships between big tech companies and traditional institutions? KPMG firms' experience working with financial institutions, fintechs and big techs suggests that the areas of central importance are organizational, cultural and strategic in nature.
Here are four key areas where financial services executives may want to focus attention5:
- Get clear on your business drivers — What business objectives do you aim to achieve through these partnerships? Let those govern your decisions. Improvements in customer experience may be your goal. If so, make the customer central to your strategy. If improvements in efficiency are the objective, put financial and productivity performance measures at the core. Stay focused on the primary drivers of the partnership, regardless of how it evolves.
- Gain agility — Speed is of the essence when working with tech firms. The priority for financial services executives must be on improving organizational agility — from rationalizing IT infrastructure to adopting agile implementation techniques. Consider this question: If the institution is to operate at market speed, what technology operating models need to be in place?
- Acquire the skills and capabilities needed to succeed — Partnerships with consumer platforms demand unique skills. Consider how you will attract, develop and retain the people you need to, not only nurture ideas but act on them once they’re ready for commercialization. The financial institution’s approach to skills development and talent management will be vital to driving value from future models and innovations.
- Be bold — This is, perhaps, the most important area of all. To successfully move their organizations into the future, financial services leaders must be daring. They must have the nerve to take chances and accept failure. There simply is no other way. Further, they must have a strong vision for the organization and make a compelling case for it with employees, customers and stakeholders. Difficult decisions will have to be made. It won’t be easy to balance the imperative for transformative change against the financial institution’s risk and regulatory requirements.
I expect in 2020 to hear even more announcements of new partnerships. However, not all of these will succeed. The organizations that understand how strategic alliances work and are committed to the end result will be the ones able to drive future value.
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