By Michal Kissos Hertzog, Head of Digital & Innovation, Bank Leumi
Despite the vast differences in organizational culture, banks and startups in the field of Fintech are a successful combination, when the main beneficiary of this cooperation is the customer
The steady increase in the number of Fintech companies in Israel and worldwide, raises the issue of the danger to the stature of banks. It is not only the growing number of these companies, but also, and especially, the capabilities of those Fintech companies to act quickly and flexibly and in a more focused way. They enjoy more room for maneuvering, are free of legal and regulatory restrictions, and operate in an inviting eco-system.
But are Fintech companies a real existential threat to banks?
In my view, the answer is – absolutely not. Fintech is an opportunity – perhaps even an historic one – for the banking industry.
Banks are becoming aware of the world of Fintech. Some know it well, and most of them choose to put their ego aside and cooperate. In many areas in the Israeli banking system, there is an understanding that cooperation with Fintech entrepreneurs can create a Win-Win opportunity for all parties, producing satisfied customers as a result of simplifying procedures and reducing costs.
This cooperation between banks and Fintechs is expressed in different ways: from mergers and acquisitions of technologies developed by Fintechs; to accelerators and innovation labs, where products and services for the benefit of customers are developed in cooperation with Fintechs.
Banks are on track
Two decades ago Bill Gates famously said that “Banking is necessary, banks are not”.
It seems that today, banks have been able to demonstrate that they understand banking and focus on customers and their needs, even – believe it or not – if it comes at the expense of profitability. It does not always happen as quickly or as desirably as possible, but banks are already on track, and they are fighting for the customer’s attention. And to draw it, they are willing to go through challenging, questioning, and perception-changing processes. It can be said that the banking industry is currently undergoing an accelerated evolution.
Fintech is one of the fastest growing fields in the world of high-tech and it seems as if everyone around is madly successful; every day someone else raises piles of money, exits are all over the place, and the regulators don’t impose limitations. This is creating a sense that success is guaranteed and all that is needed is to be proactive.
But this is far from reality. The entrepreneur’s road to success is long and challenging. Market penetration, reaching the end customer and the creation of trust are challenges that in most cases create a need for worthy partners. It is true that to be “free” means that you are on your own, but freedom is not always worth the cost.
The way to a successful partnership
Partnership between banks and Fintechs can certainly be wonderful and successful, but may also be difficult and frustrating. As in any partnership, the secret to success is communication and coordination of expectations.
Differences between the parties are significant and pose a challenge to mediation – from ongoing conduct through decision-making processes, organizational culture and not to mention the concept of timetables. These inherent differences may bring the parties to an impasse. Mapping gaps and aligning expectations in advance will result in a fruitful collaboration and shorten the path to success.
Each of the parties usually brings to the table something the other does not have: technology, knowledge, skills, a customer base and more. What’s important is that both parties bring complementary experience.
Banks, on the one hand, bring experience resulting from mileage accumulated with Fintech and innovation units that specialize not only in piloting, but also in implementation.
And Fintechs, on the other hand, bringing experience in finance, whether it is in the background of the entrepreneurs and the employees, or by virtue of the identity of the investor that supports them.
A technology-oriented approach
The first step in the innovation process in the bank is identifying or getting the idea to sprout. There are a variety of ways in which the bank does this: Hackathons; cooperation with accelerators, hubs, academics, technology giants and venture capital funds; participation in meet-ups; relations with banks worldwide; intra-organizational ideas; and the list goes on.
There is nothing better than an example to illustrate this. Two years ago, Bank Leumi identified “Scanovate”, that is engaged in mobile visualization and progressive scanning technology, as a startup with a product that has great potential. As part of a cooperation between Scanovate and Bank Leumi, a ‘Mobile Check Deposit’ service was developed, that allows customers to deposit checks through a mobile banking app, without physically depositing the check itself. The scanning and data processing technology of Scanovate is based on advanced Optical Character Recognition (OCR) algorithms for processing an image from video in real time, which the company developed. This technology operates on the user’s mobile device and is not dependent on an external server to transfer the data.
Although I have described this cooperation in a few lines, this is still a complex process, integrating innovation, technology, business development, marketing, business lines, implementation and more. Since then, the relationship between Scanovate and Bank Leumi has spawned a real partnership and even resulted in further product development such as “Snap & Pay”. The product allows customers to pay a variety of bills by simply pressing a button in the bank app. They take a picture of the bottom of the bill, select a credit card they wish to pay with and confirm the transaction.
How does it look from the Fintech side? Amir Fishman, CEO and co-founder of Scanovate, describes the cooperation between Leumi and Scanovate as such that creates a synergy which provides a technology and innovation-oriented approach that puts the customer experience and user convenience at the center: “The bank’s willingness to adopt out-of-the-box thinking as well as its capability to embrace a rapid learning process, combined with Scanovate’s technology, created a new and synergetic vision of a truly digital and innovative mobile banking application, focused on the end user’s convenience and service experience”.
No problem, it’s impossible
Jerry Seinfeld was interviewed after his recent visit to Israel and said that Israelis have no gray areas and that their answer to each question is either “Of course, no problem” or “No way, it’s impossible”; an interesting and accurate insight of someone who knows a thing or two about the human psyche, but not so in our case.
Most of us, who choose to collaborate, shift around in the “gray” area with readiness to compromise, so that we can find a common way to provide the best product and service to the customer. In this context, what seemed impossible at first becomes possible later, even if it may be somewhat different from what we imagined at first. Therefore, it is important for both sides not to fall completely in love with the concept, the product, or the initial conception. It’s true that it’s “our baby” and we imagined it in a very specific way; it’s true that they are our customers and we know exactly what they want; but we must be flexible to changes and adjustments, because we do not have all the wisdom. It is part of growing up, and it is what gives us our ability to move forward to success.
In conclusion, if we return to the question in the title, it seems the answer is clear. Banks and Fintechs can be friends, when the main beneficiary of their friendship is the customer.
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