Digital technologies are having a huge impact on the Financial Services industry. A new order is being set up, with drastic changes in business models, launch of disruptive products and services, and unprecedented partnerships between the traditional companies and start-ups.
A cornerstone of new business models in Financial Services
Forging partnerships between disruptors and innovators is the new route to develop competencies and add to the existing basket of skills. Acting as a catalyst of change, partnerships allow the industry to extend their bubbling ecosystem beyond the traditional channels, comprising of distribution, marketing, products, services, processes and customer base.
As the financial industry readies itself for next stages of digital partnerships; we have identified reasons on this growing trend. From a FinTech point of view:
Banking competencies and culture: Banks have a long-standing advantage with the right infrastructure and teams, a deep understanding of the financial products and processes and proficiency at operating at scale..
Access to the customer data base: While the FinTech start-ups have the sun shining bright on them, the one thing that they lack is time to build a large customer base. Partnering with banks is a good way to expand rapidly and get access to a goldmine of data.
Solid reputation and customer trust: Despite taking the shots during the Financial Crisis periods, customers still trust their banking or insurance partners, rather than a newbie start-up. Partnering with trustworthy and reliable brand names allows Fintech to benefit from this trust.
Regulatory and Risk Management experience: While the non-banking FinTech tend to launch without worrying about regulations, compliance and similar issues, there is always a moment where they have to face regulators scrutiny. The expertise and experience that their banking counterparts would offer in this field is unmatched given their own background.
Capital Investment: The financial industry continues to commit monetary resources in budding start-ups by investing through their venture capital arms or innovation departments. Such collaborations provide startups with much-needed funding and gives banks early exposure and first-mover advantage to exploit startups’ emerging technologies and new ideas.
From the financial industry’s angle, a partnership with FinTech is their way to shake out the institutional complacency and start exploring the potential of digital innovation.
The industry has several reasons to look forward to building partnerships with the start-ups today:
Need of the culture of innovation and technological competencies: Financial Institutions siloed approach to operations and risk-averse culture work against the potential for meaningful innovation. Start-ups, on the other hand, stand for innovation, risk-taking and agility. Bringing them together allows banks to imbibe a culture that inspires innovation and creativity.
Improve existing services and launch new services: FinTech usually come with fresh approaches in terms of design and customer experience. The coming together of financial industry and the FinTech will lead to enriched customer journeys and new disruptive products.
Become more agile and reduce the time-to-market: FinTechs bring in a whiff of agility to banks that are weighing under the burden of their legacy structures and siloed organizations. Partnering with a FinTech also means the solution development becomes in-house thus can reduce the time of go-to-market for new products.
Internal competition: Partnering with FinTech gives banks a short cut to offer new and innovative products. It is an indirect way to foster competition within the organization – because business lines will always be reluctant to cannibalize themselves from the inside. The threat of a partial cannibalization can have a positive effect and force a business to evolve and re-invent itself.
Examples of successful of partnerships: In Insurance, new market opportunities and enhanced customer experience have become a priority for all major insurers. Globalization, extension of ecosystems beyond geographies, Internet of Things and the idea of a shared economy culture bolster the prevalent need for digital partnerships even more. For example, the global insurer Allianz recently entered in a partnership with Chinese giant, Baidu, with the support of Asian investor Hillhouse Capital, with the objective of establishing a nationwide digital insurance company in China. After Zhong An, this will be the second company in China to distribute solutions online offering innovative approaches in travel, e-commerce, internet finance, short-term health, lifestyle and motor insurance. It’s also Allianz’s means to expand their presence in Asia targeting small-to-mid sized businesses as well as individual customers.
In Banking, digital partnerships encompass a broad and rich set of offerings, including better customer analytics, seamless user experience, social media usage and stakeholder collaboration. The acquisition of the US-based Simple by Spanish bank, BBVA, in 2014, set a new standard in digital banking, leading a technology-driven change. Clearly offering a win-win package for both, Simple’s unmatched customer experience and BBVA’s global footprint and commitment to innovation has set a benchmark to reinvent the banking industry.
What defines a successful partnership?
A strategic complementarity: The interdependence of the partners’ roles and their understanding of the customers’ needs should match. The partners should have clear business synergies and agree on the go-to market strategy (win-win situation).A good example of finding the right strategic fit is the partnership between AXA and BlaBlaCar, the ride-share start-up, where AXA provide insurance cover for drivers using the ridesharing service, while complementing the drivers’ existing insurance policies and also provides access to emergency and assistance services.A strategic complementarity: The interdependence of the partners’ roles and their understanding of the customers’ needs should match. The partners should have clear business synergies and agree on the go-to market strategy (win-win situation).
Shared objectives: Both partners understand how they want to launch their partnership, what they expect from it, their target, and what their mode of distribution is. They must ensure that their objectives and incentives are aligned. For example, in January 2016, GM and Lyft came together in a long-term strategic alliance where GM announced an investment of $500 million in Lyft in return for (1) a seat in the company’s Board of Directors (2) GM becoming the preferred provider of Lyft’s rental cars.
Consistent customer experience: The two partners must align on scopes, customer segments, product offerings and the right platforms that the customers aren’t actually overwhelmed by the partnership, but are excited because of it. The Japanese insurer, MS&-AD, partnered with IBM to use the famous and innovative Watson AI system for analysing customer claims, by means of a combination of voice and text data. This alliance reduced the burden on MS&AD’s call centres, while ensuring a harmonized and uninterrupted customer experience.
Seamless integration of processes: Partnerships lead to new processes, changes in governance structures and financial reporting. Integrating these processes, and deciding how far to go for the process integration will offer benefits and a clear structure to both partners.
Risk management: Good risk management is integral to deliver a successful partnership. The partners should have a common understanding of risks, levels of severity, allocation of risk ownership and a mitigation plan. This should be followed by regular and good-quality risk monitoring, review of discrepancies and subsequent filling of gaps.
What are your views on partnerships in the Financial Services industry? Email us, we would be happy to have your insight.
The CH&Co. Editorial team
The Latest on Partnerships in Financial Services
AXA and Africa Internet Group (“AIG”), a leading e-commerce group in Africa have announced an exclusive partnership of insurance products and services
AXA’s African insurance companies will now propose customized insurance products to Jumia and AIG’s e-commerce client base through its ecosystem of marketplaces and classifieds services. AXA will also become a shareholder of AIG with 8% capital ownership. Press release here
Orange aims to generate US$431 million in revenues from Financial Services by 2018
Orange, the French telecom giant, has recently entered in negotiations with Groupama Banque to acquire a 65% stake and set itself up as a fully-fledged bank offering savings, loans, insurance and other financial services by 2017. Full article here
Western Union partners with social media app, Viber, to expand its digital-based money transfer
Viber users can now send money through Western Union Connect, thanks to integration with WU’s money transfer services. Viber is WU’s second such partnership, after WeChat in China. Full article here
Royal Bank of Canada partners with robo-advisor, FutureAdvisor, to reach out to a wider range of customers
Bought by BlackRock in 2015, Future Advisor has already found a partner in BBVA Compass, which is now followed by RBC’s American arm of Wealth Management. FutureAdvisor is disrupting the wealth management market with its’ algorithms that guide investment decisions and provide personalised digital advice. See news here
Apple joins hands with China’s UnionPay to offer mobile payments, as an answer to Alibaba’s deal with Samsung Electronics
Customers of 19 lenders, including Industrial & Commercial Bank of China Ltd. and Agricultural Bank of China Ltd., will be able to use Apple Pay through UnionPay’s point-of-sales network across the country by adding their bank card information into the Wallet application on Apple devices. Read news here
Aviva’s recently launched ‘Aviva Ventures’ to invest in a range of digital and new technology businesses and made its’ first investment in Cocoon, a smart home security device
Aviva Ventures first investment is in Cocoon, a next-generation smart home security device. Cocoon alerts the homeowner to movement and sound within the house. Press release here
Barclays sees an opportunity to advance loans in a cheaper and faster manner through the RainFin, its’ Financial Technology partner in Africa
Barclays Africa’s partnership with RainFin (and 49% ownership) is part of a strategy to gain revenue from the rise of financial technology companies and also enhance its service. RainFin facilitates unsecured lending, to help it cut the cost incurred in processing loans for its customers in South Africa. See more
Allianz Italy insures first scooter-sharing service in Milan
Allianz Italy and Octo Telematics, an insurance telematics service provider, partnered to develop an integrated technical solution that facilitates the unique insurance demands of the scooter sharing service. Eni-enjoy is the first to implement this service in the crowded Italian city. Press release here
CH&Co Digital Case of the Month: Wejo
CH&Co. is involved as a mentor at StartupBootCamp Fintech New-York. On January 15th we met with the following Fintech startups: Dreamforward, Sabor-pos, LetsToken, Inspirave, BladeData, Alphahat. The next event will be the selection days March 11-13th, to select the 1st Fintech class that will be hosted in NYC between April and July 2016.
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Chappuis Halder & Co. is a consulting firm specialized in Financial Services with offices in North America, Europe and Asia. We help our clients in several industries, Corporate & Investment Banking, Commodity Trading, Insurance and Retail & Private Banking, with a permanent focus on expertise and research, especially in the Digital area.