Banks need to embrace the FinTech ecosystem and adjust to the new world through collaboration according to Banco BNI Europa chairman and CEO Pedro Pinto Coelho in a research interview with FinTech Global.
Over the past few years, challenger banks have risen as competitors to the large established lenders, providing a digital current account and money management services. With digital-only banks promising lower fees, better customer service, and snazzy user interfaces, they have long been threatening to replace the traditional high street giants.
Initially there was a vision that FinTechs would eventually get away with replacing banks, however, there has been a recent shift in sentiment. FinTechs have begun to realise it would be difficult for them to get clients, even if they provide a great service and the best technology, they would have to spend a lot to bring on customers.
Instead, these technologies could be integrated into solutions which the banks do require. “Assuming they can be integrated within the core banking system, they can leverage the bank’s ability to be a service provider and the process for them will much quicker,” he added.
“We are strong believers that the winning model will be a hybrid, so not just a bank or a FinTech. It is impossible for banks to keep up with innovation and technology, so ultimately, they will have to adjust to this new world. The FinTech ecosystem will really allow them to do so, and the sooner the banks embrace this model, the better it will be for clients.”
Despite the market seeing a move towards more and more collaboration, competition for the bank’s business doesn’t just come from FinTechs. “There are potential situations where we are see some of the larger players, not FinTechs, but players which are in other markets coming in and effectively replacing some parts of the bank,” Pedro added.
For example, players like Alibaba, Starbucks and Amazon are now suddenly supplying credit and payment services. “They are not FinTech, but they are playing the role of the banks and attracting clients and providing an alternative service.”
With the future of banking lying in the ‘hybrid model’, Pedro argues that a bank doesn’t need to be completely started from scratch. Instead, they can ‘catch up’ by doing the partnerships BNI Europa is doing.
Launched in July 2014, Banco BNI Europa has risen to become Portugal’s fastest growing digital-only Bank, aiming to challenge the traditional banking sector through strategic partnerships with fast-moving FinTech businesses.
“We will certainly be looking at more opportunities in the future to expand our spectrum of offerings, especially in areas where the clients are not necessarily happy with their current encumberments offer,” he said. In particular, BNI’s focus is on finding technologies that will give the bank an edge over the rest of the market.
BNI recently partnered with Parcela Já, a Portuguese FinTech providing an innovative payment system for customers’ credit cards. However, FinTech has also helped BNI form partnerships outside of Portugal.
The bank joined with Belgian FinTech EDEBEX to create an online platform for the purchase and sale of invoices to Portuguese companies with cash requirements. The deal represented the first partnership between a bank and a foreign FinTech to finance the national economy.
Its collaborations also include a deal with Creditshelf to invest up to €15m in the German SME sector. A month later, it joined online platform Raisin to offer term deposits to German SMEs. In the UK, BNI invested £45m in MarketInvoice, a peer-to-peer online invoice finance marketplace.
“We are not at the stage to start buying FinTechs, we don’t have the resources that the large incumbent banks have,” he added. “But we also believe it is easier to start with collaboration, not necessarily through capital investment but through partnerships, and leave them independent.
“We are different because we are happy to promote FinTech products without any conflicts of interest. We also play a very specific role on parts of the value chain. We respect the independence of the FinTech.”
With a host of partnerships already in the bag, BNI is eyeing more collaborations in future as it looks to tackle the segments of the market which have been traditionally ignored. However, he stressed the importance of finding the ‘right partner’, as some platforms may have difficulties becoming more profitable and trying to prove their model going forward.
“We are looking for players in different markets which allows us to access these markets and diversify. Whether that’s SME lending, consumer lending, discount lending, or student lending etc. We will certainly be looking at more opportunities to expand our spectrum of offerings and towards areas where the clients are not necessarily happy with their current encumberments offer.”
One area of particular interest to BNI is the advancements in Regulatory Technology (RegTech). With the financial services industry facing unprecedented levels of regulation this year, RegTech has promised to ease the burden on compliance officers.
“There is a time frame. We are preparing for PSD2 and we see that as an opportunity as we can access client information from other sources and the other banks,” according to Pedro.
“We are looking at RegTech opportunities because it will reduce the manual labour and the paper work that we have. This is an area that we are looking into and how RegTech company can help us. We have not yet had a partnership but we actively looking, he added.”
Last month, BNI Europa formed a strategic partnership with Funding Circle to support German SMBs. The partnership will supply €50m funding to finance small business loans in Germany, supporting around 600 companies and the creation of approximately 1,500 jobs.
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