But this creates a dilemma for the Fintech entrepreneur

Fintech is serious, well-funded, and coming fast

-target for venture capital in 2014.

• Targeting all banking products

• Expected to gain traction in 3-4 years

$25 billion in investment

And what do banks see as the greatest advantages of Fintech?

In fact, when you compare the weaknesses of Fintech with the strengths of banks, one sees a lot more mutual interest than head-to-head competition.

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$4.0$2.5$2.2$1.8

2009 2010 2011 2012 2013 2014

$1.9

Banks and Fintech: Complement each other in their strengths and weaknesses

There is acceptance on both sides that the best route forward is not head-to-head competition – but instead partnership and collaboration.

Banks who would partner/acquire Fintech 45%

53%Fintech executives who believe banks should partner or acquire

Why are banks finding it difficult to meet the Fintech challenge?

The perspective of Fintech executives

Disruption in the banking industry

In June of 2015, The Economist Intelligence Unit (sponsored by HP) conducted in-depth surveys of over 100 global bankers and Fintech executives on the future of retail banking. This is what we found.

Fintech threatens to disrupt the entire industry – how will banking be transformed?

70%

83%

66%

81%

82%

80% 80%

Limited line of products

Full line of banking products

Lack of investment capital

Deep financial pockets

Lack of experience in risk management

Effective risk management programs

Existing customer base

Lack of customer trust

Reputation for trust and stability

Inexperience with regulation

Experience with regulators

Need to build customer base

Where banks believe they are weak Where Fintech believes it is strong

79%

80%

74%

79%

75%

2013 to 2014

Venture funding

300%

believe banks will be strongest players or share the market

believe banks will become “minor players”

95%

5%

The Fintech firms that succeed will be the ones that partner well – and their natural partners are the banks.

Fintech firms do not foresee banks being “Ubered” or “Amazoned” – they see banks as continuing to be the strongest players in this market.

What do banks perceive as their weaknesses as they face the digital future?

Banks admit that they are having trouble facing the Fintech challenge on their own:

Capacity to innovate

Technology expertise

Agility and speed to market

Scalable, flexible technology

Absence of legacy systems

51%48%

46%

35%35%

Lack digital strategy

Culture not suited to rapid change

Constrained by legacy technologies

Lack of agility/slow to market

Recruiting/retaining tech talent

49%

38%

33%

35%35%

Over 4,000 firms vying for success – a crowded market

Funding that demands success in just a few years

Banking culture – risk averse culture makes it difficult to develop and execute vision

Concerns about security risks

Unable to attract the right people

Lack of agility. Slow to market

Technological expertise and agility

Entrepreneurial cultures Flexible technology

Banks are not going to be Ubered or Amazoned. Instead, their path will be to combine forces with Fintech through acquisitions or partnerships. Some thoughts on “Fintegration”:

Include IT in due diligence and integration planning

Ring fence the new culture

Make regulatory integration an early priority

Make data security an early priority

Data integration

Integration of enterprise infrastructures

Combining a bank and Fintech is at its heart combining two technologies - start early with a tech-driven roadmap to the end state.

Keep the innovation of Fintech alive within a risk-conscious banking environment.

The exception is regulation – it is mandatory to bring the acquired entity under the bank’s regulatory standards and systems.

Security is top-of-mind for both parties, and for good reason. Bring the combined entity up to the higher security standard of the two.

Create a data integration plan, with early priority on creating one customer. Flexible cloud systems should help.

Once these priorities have been met, the process of integrating the two infrastructures – data centers, data networks, network and application architecture, etc – begins.

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