Chapter 6: FinTech and TechFin: Friend or Foe?

Navigating the Future of Banking with the Institute of Bankers in South Africa

Chapter 6 of Brett King’s book, Bank 4.0, is titled "FinTech and TechFin: Friend or Foe. " In this chapter, King examines the complex relationship between traditional banks and the emerging wave of FinTech companies. Are they competitors, collaborators, or something in between? Let’s unpack this.

To kick things off, let’s clarify what we mean by FinTech and TechFin. FinTech refers to the financial technology companies that are revolutionizing the financial services industry, often providing innovative solutions that challenge traditional banking practices. On the other hand, TechFin represents technology companies that are entering the financial services space, leveraging their technological prowess to offer banking-like services.

According to King, there are two key narratives emerging in this ongoing battle: some view FinTech as a threat to traditional banking, while others see it as an opportunity for collaboration.

Let’s explore the first narrative—the notion that FinTech will kill banks. Many industry experts and analysts have been vocal about this sentiment. For instance, as King points out, if you search for "FinTech killing banks, " you’ll find a plethora of articles discussing how FinTechs are poised to disrupt traditional banking practices and take market share from incumbents.

In fact, King cites that investment in FinTech reached over $31 billion in 2017, illustrating the massive financial backing these startups receive. With such momentum, it’s understandable why many might believe that banks are on the brink of extinction.

However, it’s not all doom and gloom for traditional banks. King also highlights that this is not a zero-sum game. While some banks may falter, others are adapting and evolving. In fact, a significant number of banks are recognizing the value of partnerships with FinTechs.

Research shows that 93% of banks are looking to collaborate with FinTech companies, indicating a shift in mentality. Instead of viewing FinTechs as competitors, banks are beginning to see them as strategic partners that can help enhance their offerings and improve customer experiences.

So, what are the benefits of such collaborations? According to King, partnering with FinTechs allows banks to tap into innovative technologies, reduce costs, and accelerate the development of new products and services. This begs the question: How do banks choose to engage with FinTechs?

King outlines four key strategies that banks can adopt when responding to the challenges posed by FinTechs:

1. Do Nothing: This is the slow decline into obsolescence.

2. Partner with a FinTech: This is often the cheapest and fastest route to innovation.

3. Acquire a FinTech: This can be fast but comes with cultural challenges.

4. Copy or Mimic FinTech Innovations: This is typically slow and costly.

Now, let’s talk about some of the barriers to cooperation that King mentions. Traditional banks often face challenges such as regulatory compliance, cultural fit issues, and procurement processes that are not conducive to agile innovation.

For instance, a FinTech may have a brilliant idea, but if a bank’s procurement department insists on lengthy and complex contracts, that partnership could stall before it even gets off the ground. This highlights the need for banks to adapt their internal processes to foster collaboration.

As we wrap up this discussion on Chapter 6 of Bank 4.0, it’s clear that the relationship between FinTech and traditional banks is complex and multifaceted. While there are certainly challenges and threats, there are also immense opportunities for collaboration and innovation.

Brett King argues that banks must embrace the changes brought about by FinTechs and adapt to the new realities of the financial services landscape. Whether they choose to view FinTech as a friend or foe may very well determine their future success.