Startups win by doing 1 thing well, Banks win by integrating the UX using APIs.

Banks need to stop thinking of Emergent Fintech as a threat and look at Emergent Fintech as the biggest productivity tool ever given to their IT team.

Emergent Fintech Startups win big by doing one thing well and generating network effects. The mantra is focus, focus, focus. What used to be derided as a “feature not a product” is now the key to winning. What changes this is the emergence of APIs and the Programmable Web.

To win the network effects game, startups have to empower an ecosystem through APIs, even if the players in that ecosystem become more valuable than them.

You can see this at work when you look at the Lending Marketplace ecosystem.

Rather than looking at their internal systems as the only source of their IT competitive advantage, Banks should look at the whole Internet-scale ecosystem of the Programmable Bank as the “IT gift that keeps giving”.

The key to seizing that advantage is to put yourself in your customer’s shoes and to address the integration and pain points that customers have with the startup point solutions. Follow the early adopters as they work hard to get real value from these emergent Fintech services.

Once you get past the hype, you see these early adopters putting in a lot of effort to get value out of these services. This is not just “click here to make money”. For example, somebody trying to get decent risk adjusted returns on Lending or Crowdfunding platforms has to work hard. Low Cost Active Alpha is very different from Passive Beta. Some people may entrust all their money to Passive Beta Robo Advisers doing Asset Allocation, but many will mix that with some more active strategies. Some will operate a bar bell strategy, investing in high velocity startups on Crowdfunding sites at one extreme and putting the lion’s share in low cost asset allocation platforms.

Or consider all the new services for SME whether it is term loans, equity, cash flow lending or asset lending. Putting all those together into an integrated financing plan takes work. The SME CFO does not simply hit “click here for optimized working capital”. It will be “horses for courses” in the real world.

Creating that sort of integrated financing plan is where Banks can score. Banks have the brand (albeit a bit tarnished recently) and they have the existing customer base (albeit that customer base is looking elsewhere).

If you ask the early adopter consumers about many of these Emergent Fintech services you will get a litany of issues. These are the folks who have used them for real, so they see the potential value, but most also see past the hype and understand they do not offer any silver bullet. Banks that get this kind of reaction from focus groups can have one of two reactions:

  • “Phew, I am pleased that is all over and we can ignore it”. This is like hearing that consumers were having problems buying stuff online around 1996.
  • “This is clearly the future and these early adopters are giving us our to do list”.

The key is building a great User Experience (UX) that integrates multiple services as well as adding something that only the Bank can provide such as customer data analytics (mixing internal and external capability).


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