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Banks are prepared to work closely with IT startups to help them remain competitive as the threat from technology companies and financial services startups becomes significant.
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The latest research from banking association Efma and Infosys Finacle found that 77% of 158 global banks questioned view technology companies, startups, retailers and telecom companies as significant threats.
Companies from outside financial services are increasingly encroaching into the business of banks.
For example, the German business division of mobile operator Telefonica is using technology from a challenger bank to launch a mobile-based bank account. Meanwhile, technology companies such as Apple and Samsung are using the popularity of their smartphones to offer payment services.
There is also PayPal, a technology company with deep roots in financial services. The company is trusted by consumers and eBay’s decision to spin it off – announced in September 2014 – enabled the two companies to focus separately on growth, suggesting PayPal had its own ambitions.
In 2015, PayPal acquired Paydiant – which sells mobile payment software to retailers and digital money transfer firm Xoom – for more than $1bn in total.
Banks can’t keep up with the pace of change, particularly as they are held back by 40-year-old mainframe technology. It is not surprising the Efma/Infosys research revealed that almost three-quarters (73%) of them think collaborating with startups is the best way to remain competitive.
HSBC’s head of retail banking and wealth management, John Flint, agrees. He recently said mutual respect now exists between financial technology (fintech) companies and banks, with more collaboration expected.
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- Peer-to-peer lending accounted for more than £1.2bn of UK loans in 2014, with confidence growing among businesses and individuals in IT-enabled access to credit.
- Cloud-based UK peer-to-peer lending platform MarketInvoice is moving to a Microsoft Azure-based platform as a service (PaaS) to cope with demand.
- Internet giants will not try to replace banks, but will disrupt the sector through services that take consumers away from traditional banks, says Forrester.
Vincent Bastid, CEO at Efma, said the Efma/Infosys Finacle study confirms banks have turned to startups to drive their own digital transformations.
“However, banks are being held back by old legacy systems and are still divided on where and how much to invest,” he said, adding that banks should embrace new ways of doing business.
Some are already embracing different approached to business, with many banks investing in startups and helping them grow through incubation programmes. This helps them guide developments in certain directions, develop relationships with these companies and adopt their technologies.
Then there are the tech-based challenger banks that are shaking things up, one of which has been acquired by a bank – German digital challenger bank Fidor was acquired by French mainstream banking group BPCE to support its digital growth. The bank swore it will change Fidor’s approach to digital banking and run it separately.
The Efma and Infosys Finacle research also revealed that a fifth of banks are launching or considering launching a digital-only bank as a strategy for dealing with digital transformation.
Banks must act quickly because customers have already voted with their feet. The findings of the recent EY study of more than 10,000 digitally active consumers globally found that around 3,000 had used financial technology services.