Influence of FinTech on the banking sector

Discover the history and growth of financial technology (FinTech) and its influence on the banking sector in two parts covering ‘Evolution and rise of FinTech’, and ‘Impact of FinTech on the banks.

Part Two: Impact of FinTech on the banks

Traditionally, banks were conservative and slow to embrace changes, especially any technological adoptions. With the spurt of FinTechs and their adoptions to cloud, Artificial Intelligence (AI) or Machine Learning (ML) for quick time-to-market, banks are now forced to follow the suit. Banks are now adopting agile development models, exploring cloud functionalities, and decommissioning legacy data centres.

It is worthwhile to note other key changes including:

1. Growth of digital only banks (mobile banking)
2. Acceleration of digitisation (chatbots, roboadvisor, etc)
3. Embracing cloud-based technologies (IaaS, PaaS and SaaS)
4. Adoption of agile models: Scaled Agile Framework (SAFe) and Spotify Scaling Agile Model
5. With agile adoption, new emerged roles include Product Owner (PO), DevOps Engineer and Site Reliability Engineer (SRE)
6. New laws and regulations implemented including Payments Service Directive 2 (PSD2), General Data Protection Regulation (GDPR), Strong Customer Authentication (SCA)
7. Increase in merger and acquisitions (M&A) – With small and community banks’ merger with regional and national financial institutions, banks are now involved in M&A activities to kill competition, fast-track their digital transformation journey, gain market share and take advantage of cutting-edge products.

For instance, Societe Generale’s acquisition of Fiducéo in 2015 made it the first French bank to acquire a FinTech in Europe. Societe Generale made another acquisition in 2020 with Shine (a Neobank). The acquisition was part of the banks’ strategy to adopt and support open banking initiatives.

What is still evolving?

While traditional banks have taken steps to catchup with FinTechs, many new areas are yet to discovered by both banks and FinTechs.

1. Open Banking – The challenges remain around monetisation and revenue impact, along with lack of business and revenue focus in these initiatives
2. Banking as a Platform/Service
3. RegTech (Regulatory Technology)
4. SupTech (Supervisory Regulatory)
5. Bank and FinTech partnerships to offer joint services – For instance, Societe Generale recently partnered with Kyriba, a cloud-based finance and IT solutions provider, to launch a treasury management solution including payment automation and fraud management functionalities.

Areas banks can focus to gain FinTech business share:

• Upgrade core infrastructure: Bank’s legacy systems cannot do seamless integration with Fintech stack

• Focus on user journey – Shift from product-based selling to solution-based selling

• Build trust with customers/clients – Find ways to engage with customers, improve support

• Time-to-market – FinTechs have an upper hand due to their size, tech stack, process

• Partnership and collaboration – Take advantage of the collaborative Fintech ecosystem

Latest technology enablers changing the way banks provide innovative services:

1. Robotic Process Automation (RPA) – Automate anything that is repetitive such as customer onboarding, account maintenance and closing, trial balancing, credit card and mortgage processing
2. AI and ML – It is estimated that AI will reduce 22% of the bank’s operational expenses by 2030 (equivalent to $ 1 trillion in savings). Chatbots for customers service, prevention of cybercrime, among others.
3. RegTech – An emerging area covering reporting, monitoring, and compliance. Reg-Tech with the help of Big Data and ML can offer crucial data on money laundering activities.
4. Blockchain – With great potential for wider adoption. Smart Contracts is a great use case that many banks are exploring. Cross border payment, where JPMC released JMP coin (Digital Coin) on the Onyx platform. Societe Generale issued a €5 million structured product as a security token on the Tezos public blockchain.

Societe Generale and FinTech

Societe Generale has taken several initiatives to stay ahead of FinTechs and be the innovative bank.

1. Open Innovation Platform
   • Societe Generale has invested heavily in its partnerships with startups that have global presence to build PoCs
   • Societe Generale’s five innovation centers (Two in Paris, one in London, one in Bangalore and one in Luxembourg) are a testament of its commitment towards  innovation
2. SG Ventures
   • Societe Generale’s Corporate Venture Capital (CVC) arm dedicated to innovation, and a strategic partner enabling Fintech and mobility start-ups to accelerate growth, launch new products, innovative technologies, and disruptive business models

These apart, Societe Generale has invested in the following FinTechs

1. Banking-as-a-Service (BaaS)
   • Societe Generale has been a strong supporter of Open Banking and Banking-as-a-Service and collaborated with Treezor and Moonshot.
     • Treezor – Acquired by Societe Generale in 2019, Treezor is a leading European BaaS platform. The FinTech is an Electronic Money Institution (EMI) approved by the French regulator and offers services for entire payment chain, from acquiring to issuing.
     • Moonshot – Moonshot Insurance, the Insurtech of Societe Generale Assurances, is the pioneer in Insurance-as-a-Service solution to empower the e-commerce industry, mobility providers, financial services, etc.