Big Banks and Fintech Startups: Bitter Rivals or Formidable Partners?

The fintech narrative has always been a fascinating one. At the end of Q3 2018, the fintech industry has attracted over $32.6 billion in funding, further strengthening the belief that FinTech will disrupt traditional banking. Surely, there is sound logic to believe that. While traditional banking players are still in the early stages of rolling out, on a massive scale, customer-oriented solutions such as: 24x7 access; services via non-traditional channels such as social media; and highly-personalised banking apps and websites, FinTechs are already right smack in the middle of these customer-centric innovations. The FinTech ecosystem has also grown in depth and magnitude, allowing each of the companies that exist in this ecosystem to have laser-like focus in their customer acquisition activities.

However, all these activities and investments still pale in comparison to the massive scale and reach of the traditional banking industry. While it’s true that the very simplistic nature of banking products and services for individuals and businesses make the sector ripe for disruption, it is highly unlikely that this disruption will come from competition. Rather, it can be argued that collaboration will be the ultimate driver of disruption in the banking and finance sector. We already see how banks leverage on FinTech start-ups to further pursue their goal of digital dominance. FinTechs, on the other hand, are all too willing to partner with big banks to accelerate their growth and tap on its massive distribution channels.

Fintech, Blockchain and the Digital EconomyOver the past few years, we have seen the rise of Bitcoin, along with many other cryptocurrencies. A peer-to-peer electronic cash system, its goal is to rid the world of all the problems caused by centralized financial systems. The idea is, if there is a way for people to send and receive money, peer to peer, without any intervention by central authorities like governments or central banks, then transactions will be faster, cheaper and overall, more liberating.

Key to Bitcoin’s success is the use of a revolutionary technology called blockchain. Simply put, “blockchain” is a digital ledger in which transactions made in Bitcoin or another cryptocurrency are recorded chronologically and publicly, in a decentralised manner. This method of transaction recording keeps the integrity of the whole process, making it a viable alternative to a typical centralised approach.

There is no doubt that this revolutionary idea has sparked so much attention and spawned several start-ups using blockchain as a way to dominate the digital economy. Companies, big and small, took notice. People across the globe have started to accept cryptocurrencies as payment for goods and services. Blockchain technology and cryptocurrencies have become part of our daily lives, albeit not on a massive scale. Or at least, not yet.

The Transformation of Big BanksWhile some purists believe that a totally decentralised system is the way forward, many financial institutions thought otherwise. Adopting the same technology (blockchain), with some elements of central authority, to achieve that same purpose of providing cheaper, better financial services, big banks started to adopt and/or partner with FinTechs to provide greater value. Some of the most notable banks that are already using blockchain technology are: Santander, HSBC, JP Morgan Chase, The Bank of Ayudhya and China Construction Bank.

Partnerships also abound. In 2018, we’ve seen Singapore’s DBS and UOB partnering with ride hailing apps Gojek and Grab, respectively. The obvious purpose of opening up payment channels is one reason, but analysts believe that this could be extended later on to lending and other forms of financing with the accumulation of rich data.

These partnerships were brought about by the rapidly changing customer base that pushes banking players to forge alliances with FinTechs. In order to secure their stronghold on key customer base such as retail (HNW, mass affluent, mass) and corporate (MNCs and SMEs), these partnerships are launching new business models such as aggregators, digital banking, treasury management and others.

But this is not to say that these partnerships will always be smooth sailing. In fact, bank-fintech partnerships are fraught with challenges. Among them are:

Unmet expectations about digital account opening.Many banks believe that a fintech partnership will make it easy to open bank accounts through digital channels. The reality is that while fintechs might bring great technology, a lot of work still needs to be done in order to achieve successful digital sales.

Not enough resource available. Partnership entails allotting manpower resource from both sides. Oftentimes, talks of partnership are good on paper but there is no real collaboration happening as both sides are still operating in silo.

Culture change doesn’t happen quickly. This may be one of the biggest hurdles of all

The Next Generation of FinanceUBS, winner of Best Global Private Bank and Best Private Bank – Asia Pacific at The Digital Banker’s Global Private Banking Innovation Awards 2019 believes in strengthening its digital channels to effectively connect, not only with customers, but also with potential partners and collaborators.

James Aylen, Head of EVOLVE, The Centre for Design Thinking and Innovation at UBS, emphasised this during an interview: “We have a multi-channel strategy that looks at providing service to our customers through various digital channels. This allows us to move quickly and collaborate with them through different touchpoints efficiently and in real time.”

Possibly one of the best approaches in striking a win-win situation between big banks and fintech start-ups is one that is both collaborative and incentive-driven. An approach currently espoused by UBS.

Central to UBS’ strategy is its collaboration with the next generation of start-ups and entrepreneurs. Recently, it launched “Future of Finance Challenge 2019”, an open competition for fintech start-ups and tech entrepreneurs around the world. Its goal is to find an innovative and potentially disruptive technological ideas and solutions that address specific challenges to support the transformation of banks for the future of finance. Part of this initiative are cash prizes and opportunities worth over USD $200,000 and 150 hours of dedicated coaching from UBS experts, mentors and partners.

Edmund Koh, President UBS Asia Pacific, shares his thoughts on this initiative: “With Asia emerging as a global innovation hub, I am excited about the launch of the UBS Future of Finance Challenge held in Singapore for the region. We look forward to collaborate with fintech start-ups and aspiring technology entrepreneurs to develop innovative solutions that will drive our industry’s digital transformation, enabling us to be future-ready.”

There is no doubt that with UBS’ experience and the incentives involved in this program, fintech start-ups will be lured and innovative ideas could come to fore, which is the key to unravelling the full potential of a bank-fintech collaboration.

Oftentimes, ideas get stuck because the amount of effort and resources needed to get it off ground is enormous. UBS’ approach could serve as a template for big banks on how to best engage fintech start-ups and spur collaboration. In such a case, both parties would profit. Opportunities ranging from product design and development instigated by the start-ups could be matched by the distribution and infrastructure capabilities of big banks. The result will be a formidable partnership that builds rather than destroys.

as, by its very nature, banks and fintechs have very different cultures and values. One cannot just impose its culture towards the other. This process takes a lot of time and effort from both sides.

Could you be the Future of Finance?

The UBS Future of Finance Challenge 2019 is open to start-ups and established, growing companies that think they can change the way finance works and how banks meet their clients’ needs – delivered this year in collaboration with Deloitte and 100% Open. Submission deadline 15th August

The UBS Future of Finance Challenge allows participants to present their ideas and solutions in a global competition with cash prizes and opportunities to accelerate worth over USD $200,000 and including over 150 hours of dedicated coaching from UBS experts, mentors and partners.

It is UBS’s aspiration to support the competition winners to further commercialise and scale their ideas and technologies using its significant global presence, deep expertise in global banking and eco-system of innovation partners.

The UBS Future of Finance Challenge is delivered in collaboration with Deloitte and the innovation agency 100% Open. This collaborative approach offers commercial and technical expertise to the innovators participating in the competition, and provides them with access to the innovation pipeline of a leading global financial services firm at the same time.

Submission details

• Entries should be submitted at www.ubs.com/innovate The deadline for submissions is August 15, 2019. • 10 participants per region (APAC, EMEA and Americas) will be invited to attend the Regional Finals in either Zurich (October 9 & 10), Singapore (October 11& 12), or New York (October 15 & 16). • Applicants must attend the Regional Finals in person.

Collaborating with the next generationof startups and entrepreneurs

Learn more at www.ubs.com/innovate