FinTech 2017: how digital transformation challenges of banks will lead to acquisitions

As mentioned on our FinTech page and confirmed by, among many others, the World Retail Banking Report 2016, partnerships and collaborations in various forms and shapes are the future in the relationships between banks and FinTechs.

34 percent of banks are open to collaboration with a FinTech company while 25 percent would consider an acquisition

Several examples have shown different approaches and virtually every analyst is emphasizing the more collaborative approach. Yet, not all banks and regions are the same.

On September 15th, SAP announced an e-book by IDC, “The Future-Proof Digital Bank” (see below as well). According to the press release six in ten global banks are open to partnering with FinTechs. Note: as opposed to the World Retail Banking Report, the findings concern both retail banks and corporate banks.

Collaboration with FinTechs as a way for banks to move faster

IDC Financial Insights, who conducted the survey (265 respondents), which SAP sponsored, aimed to look into how banks are digitally transforming – or not digitally transforming enough.

Inevitably, the collaborative attitudes regarding FinTechs were investigated within that scope as there are still quite some lessons that can be learned from FinTechs when it boils down to digital transformation.

Before we tackle that in a future article (you can read about the digital transformations in retail banking here) back to that openness regarding partnering between banks and FinTechs. Looking at the various kinds of cooperation, 34 percent of banks are open to collaboration with a FinTech company while 25 percent would consider an acquisition.

Like several others, IDC advices banks to closely work with FinTechs, whatever form that collaboration may take and the reasons are similar to those mentioned by other firms and on our website. Incumbents are too slow to own, as IDC puts it, “the end-to-end stack”. And there are more reasons.

Jerry Silva - Global Banking Research Director IDC Financial Insights on LinkedIn
Jerry Silva – IDC Financial Insights

“Digital transformation at any bank always begins with an honest self-evaluation involving many questions that touch upon evolving customer demands, strengths, weaknesses and the competitor landscape”. Source

Jerry Silva, research director, IDC Financial Insights.

The state of digital transformation in banking: just starting

According to the “The Future-Proof Digital Bank” report there is still a lot of work to do regarding digital transformation or DX in banks where enterprise-wide digital transformation efforts for now are lacking, putting most banks at the bottom of digital transformation maturity levels and at the beginning of more integrated and broader digital journeys. Most initiatives are ad hoc, happening on a project-by-project basis or repeatable as you can see in the report.

The press release puts it this way: “While most banks are quick to report that they are digitally savvy, the study found that most digitally transformative initiatives are still business-led islands of innovation only posing as digital transformation, while true business-wide transformation remains rare”.

And the good old challenges remain. On SAP’s Digitalist you can, for instance, read a blog post about the good old phenomenon of focusing far too much on the front office alone, illustrated with clear findings from the report.

It’s also interesting to see how digital transformation is driven by different goals across various regions and different DX business models are adopted around the globe.

Geographical differences in the willingness of banks to work with FinTechs

Going back to the willingness of banks to collaborate with FinTechs or acquire them, the survey and e-book also mention quite important differences according to geography in this regard as well.

In Europe, distrust is highest of all. FinTechs are seen more as competitors, rather than potential partners and there is less willingness to invest in them or acquire them than in other regions.

In Europe, banks are much more likely to view FinTech companies with suspicion

This isn’t exactly good news for several European FinTech (start-up) hubs. While the UK is the most collaborative (along with Ireland and Italy), France, Germany and the Nordic countries are most likely to see FinTechs as competitors.

With the status of London and the efforts of countries like Germany and France to attract financial services firms and FinTechs in mind, it’s time for a wake-up call in the EU – even if things are moving. Do note that the research was conducted in June 2016, indeed the month when the Brexit referendum took place.

Whereas many European banks see FinTechs as a threat and belive they can develop their own capabilities to fight off FinTech companies, banks in North America and the APAC region have a much more positive, collaborative and – let’s face it – realistic view whereby they understand that developing these own capabilities is not easy at all, that it takes time, that there is a lot to learn from FinTechs by working with them and – thus – that acquisitions and partnerships are probably a faster and better way to move forward.

Time will tell who is right but if European banks waste too much time trying while other banks are acquiring FinTech companies, and thus their technological skills, innovative capabilities and know-how regarding both DX and CX (customer experience), time might turn out to be a critical factor. Don’t say IDC – and we – didn’t warn you.

2017 and beyond: from disruption to participation, collaboration and acquisitions

Rob Hetherington - Global General Manager - Financial Services Industries at SAP since 2016 - on LinkedIn
Rob Hetherington – Global General Manager – Financial Services Industries at SAP since 2016 – on LinkedIn

In the press release, Rob Hetherington, since February 2016 the global head of the Financial Services Industries organization of SAP, mentions some reasons why FinTechs and banks are a good match.

They are pretty much the same as those found in other research and in the Global Retail Banking Report 2016. We quote: “Banks are in the midst of digital transformation, looking for ways to speed their time to market and to deliver new value or services to customers. Start-ups on the other hand are mobile, agile and built solely for the customer, yet they lack the regulatory know-how and customer confidence that large, global banks have”.

Complementary indeed and thus again a sign for a probable wave of acquisitions and participations in the FinTech space in 2017 and beyond, albeit possibly less in Europe.

With 2017 approaching fast (in two months from now, the World Retail Banking Report 2017 already gets released), it’s safe to say that 2017 – and beyond – will be an interesting year with more FinTech acquisitions, participations and collaborations.

You can read, scroll and/or download the entire e-book in a FlippingBook format on .