Amid Covid-19, people all over the world people are waking up to a new reality. A new reality shaped by the importance for all of us to come together… to communicate… and to collaborate in this unprecedented time. Seeing communities come together in times of crisis is an inspiration to us all – which we will take into our business lives.
Collaboration is key
Open Banking, built on the principle of collaboration, represents a genuinely new way of empowering people with their data in a secure fashion – It is the secure way to give providers access to your financial information (OBIE) which in turn can provide a host of services personalized to the user – it is also a key milestone on the journey to a digital economy that encourages people to manage and gain a richer understanding of their total spending.
Additionally, Banks and FinTechs continue to discover new opportunities by leveraging consumers’ financial data to learn more about them and consequently serve them better.
In our previous blogs, we’ve addressed how Open Banking is important for both consumers and banks, but now we turn to the benefits for FinTechs.
The Big Opportunity: Unfulfilled Customer Needs
MENA’s pro-innovation regulatory environment and advancement in digital technology have driven an upsurge in the number of FinTechs in recent years.
The region’s FinTech sector is growing at a 30% compounded annual growth rate. By 2022, it is estimated that 465 FinTechs in the region will garner $2+ billion in annual funding, a 25x improvement when compared to the $80 million in funding fintech organizations brought
These FinTechs have tended to focus on segments within the banking value chain where the greatest sources of frustration and inconvenience exist. Examples include credit scoring (Credit Kudos), SME financing (Growth Street), and instant payments (Token), to name a few.
Movements around the world right now are occurring to accelerate innovation through open application programming interfaces (APIs) and data sharing, which aim to solve the mismatch between the products people are using versus what they need.
Deloitte identified more than 820 functionalities that cover the entire digital customer banking journey: from information gathering, day-to-day banking, all the way through to the end of a customer relationship. Currently, banks and credit unions are unable to meet the full range of digital activities that consumers want due to a lack of digital maturity or a full understanding of the customers’ needs. This causes customer frustration but opens up opportunities.
A significant opportunity arises where FinTechs can address these main customer pain-points with modern technology, including enabling technologies like end-to-end APIs, artificial intelligence (AI), and slick user-experiences. Cornerstone’s What’s Going On in Banking study shows that “65% of banks want a FinTech affiliation in 2020 (up from 49% in 2014)
However, this is easier said, than done! The model does not come without its challenges. Banks are set up very differently to FinTech players. From structure, technology, culture, cost, and more so they aren’t a natural fit. A big part of the problem could be that too many incumbents are treating FinTech players as just another type of vendor. That may be natural, as institutions seek to normalize relations with those they might have once considered threatening disruptors or potential competitors. But in the long run, seeing FinTech providers as vendors is likely to be a less effective approach than viewing them as collaborative partners.
As open banking continues to evolve and the use cases become more obvious, both industry players will find a more streamlined environment for partnerships to form to which supports a cooperative and customer-centric banking operation.
Stay tuned for our next article that will highlight some of the best bank and FinTech partnerships of 2020!
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Stay safe everyone!