Cooperation with FinTechs: The CIO should clarify some aspects beforehand

Successful digital programs and projects are in the planning, defined strategies and blue-prints, taking numerous stages, stakeholders and variables into account. Today, we are summarizing the strategic considerations that support the successful digitization strategy, specifically focusing on the deployment of external partners in the right functions, at the right times, whilst maintaining the independence of your internal IT departments.

There is no lack of overviews within FinTech: ‘The 50 hottest FinTech companies in Europe’, ‘The Best Fintech start-up in 2017’ or the ‘Germany Fintech Landscape’. But within this deluge of information and option, how do Banks CIOs find the right technology partner for their organizations requirements? Gartner recently stated that a quarter of all Retail Banks will seek support from start-ups by the end of 2019 to replace their legacy online and mobile banking systems. Unfortunately, we are not yet at the stage where we have technology ‘All Rounders’, one organization to support a Banks every digital need. It is therefore key to clarify in advance, specifically what the Bank wishes to achieve.

Digital transformation or cost reduction?

CIOs can go in two directions: they look for partners for digital transformation or they set up projects to reduce costs in the IT function. As many initiatives are driven by changing customer requirements, many are likely to focus on introducing services that enhance the customer experience. They are required to filter out offers and projects that bring real added value to the individual bank and its clients. “FinTechs that facilitate the digital business have the potential to radically change the way the bank does business and generates revenue,” Gartner said.

In any case, the partnership with or investment in a FinTech pays off, because it gives the financial institution the opportunity to gain experience with new technologies and business models. CIOs and management can better assess risks and understand application areas. However, given the average life expectancy of the FinTechs, it would be fatal to commit to a start-up. It is estimated that four fifths of the innovators disappear from the market. This risk should be taken into account in every cooperation. Banks can prevent this by transferring know-how, for example.

Also dangerous: not to cooperate with FinTechs

The CIOs should be aware of another source of danger: The decision not to cooperate with FinTechs also carries risks. Technologically, the bank can fall behind, it loses time and the costs for IT optimizations can increase. All these aspects must be included in strategic planning. For almost all cases of cooperation, financial institutions need an API architecture to integrate the applications. It is worthwhile to pay attention to the possibilities of API management in order to maintain control over IT and data at all times. If the separation from a Fintech can be depicted technologically cleanly, companies are more open to cooperations, the benefit of which ultimately consists in having learned from mistakes.

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