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4. September 2017

Digitisation by merger alone won’t cut it

Cooperating with fin techs is only the first step

After introducing online banking in the recent past, many banks are now cooperating with fintechs – or taking them over wholesale. So, that’s digitisation settled, right? Well, no. Only when in-house working processes are digitised, financial institutes will be able to meet current requirements.

Yesterday’s enemy is today’s partner

It seems like only yesterday when fintechs were beating their chests like mighty silverbacks. Today they seem more like cuddly panda bears. None of the clever start-up-companies were able to squeeze a traditional bank out of the market. Sure, fintechs did end up with a few choice morsels but the competition never got threatening for the banking houses. The banks, on the other hand, have made their peace with the competition they used to eye suspiciously. In fact, they changed their tune from confrontation to cooperation.

The success of the fintech companies was in tapping into a new audience – young and digitally savvy. And the banks have drawn the right conclusions: by cooperating with fintechs or taking them over, they have brought a lot of innovative potential into their fold. You don’t have to reinvent the wheel, if you can buy a fully functional one.

Expanding into new areas of business

Indeed, more lasting success can be achieved by working together. The fintechs were able to expand their business into the turf previously held by their new partners, the banks. And the financial institutions, still number one when it to customer trust, enhanced their product portfolios. Now, robo-advisor and customer consultant are shaking virtual hands and the splitting of the profits is settled by the partnership agreement.

Also, the German Federal Financial Supervisory Authority Bafin has ruled that robo-advising is, in fact, a traditional advisory activity, only with different means. Thus, a licence is required. A licence which many fintechs do not possess. And which they do not need if they are operating under the roof of a well-established bank.

Understanding the sign of the times

It seems that banks as well as the fintechs have understood the sign of the times. After the introduction of online banking, expanding into the realm of other digital services is an important step into the future for traditional banks. From the outside, it may look as if the digital age has finally dawned. Alas, a glance behind the scenes proves sobering. Digitising bank business is not only about offering current digital products to gain new customers. Just as important is the digitisation of in-house operations which is still causing a lot of problems.

As amicable as banks and fintech companies are conducting their business nowadays, one belligerent silverback is still around: British digital pioneer Tandem is wholly taking over Harrods Bank. An upside down merger, so to speak.

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