Banking operators must look to capitalize on the new trend of decentralized personal finance and lending platforms. In this article, we examine how the often-hyped technology behind Bitcoin, creates impactful opportunities for fintech growth leaders and advances industry standards for managing risk.
Decentralized Banking is a core part of the fifth industrial revolution. There’s going to be a lot of disruption and if left unregulated, risk exposure to retail consumers may be significant.
What we can conclusively identify is a defiant growth trend [that is here to stay] where startups at the forefront of fintech innovation have potential in two core segments. One is the ability to create new mediums of value for customers. And the second is the ability to take advantage of new technologies to create a scalable value for the bank — such as APIs and broader data sharing platforms.
Managing Expectations for Innovation Leadership
The most important challenge for banks is to try to take advantage of this new reality. It’s not about basing the enterprise on unproven financial products, such as Cryptocurrency. It’s about executing on a vision and a strategy of growth continuity. In that context, there are three critical insights that can help banks and their transaction partners (clearinghouses, insurers, credit data aggregators, etc.) to overcome current barriers to fintech innovation leadership.
1: Implications of Connected Digital Economics
A core part of leadership is acknowledging and appreciating change, the pace of which in the retail and commercial banking sector is increasing exponentially. We know that the broader adoption of technology in the last 15 to 20 years has set a vector for continuous acceleration — such as compute power of silicon graphics or the proliferation of apps — to set new benchmarks of consumer expectations.
There’s now a foundation of consumer experience [user experience] that is going to result in some disruption for existing market dominant players that are laggards to app-led service delivery.
2: Expected Value of Disruption
The context and nature of the disruption that’s going to hit retail banking operators will be significant enough to displace large providers, particularly for brick-and-mortar intensive community banks (including cooperatives, credit groups, etc.). The question then becomes, “what is the right way to create value for customers?”. We’ve taken a deep dive perspective in our Fintech Experience: Customer Journey Strategy insights.
3: Innovating Compliance
As the pace of change in the industry itself becomes a source of disruption, led on by Digital M&A transactions, managing financial fraud risk through securitizing transactions [with data profiles rather than assets] and cloud data protection requires adopting new technology layers in the stack.
“APIs leveraging on-device facial recognition and heuristics of user behavior can serve as risk indicators for profile development.”
Blockchain is attracting attention because of the extent of uncertainty surrounding applied solutions such as Cryptocurrency. However, many banks have been slow to respond in adoption of what’s akin to modern distributed databases as it requires decentralized partners in the value chain.
We’ve acknowledged financial institutions, of course, are working on some kind of strategy to better understand what is going to impact the customer. However, it must involve a number of things, such as: how do you actually consume financial products and services driven by apps, to reducing onboarding friction in accessing credit services, as well as new compliance processes to mitigate the risk of what is going to hit the bottom line.
The perspective suggests that fintechs, especially platform-based technology companies, can play a critical role in delivering innovative services to consumers and to disrupting the industry landscape. Existing market players have a critical role in understanding the broader implications of potential value, and what can actually materialize at scale to enhance customer trust.
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About: Perspectives are from the viewpoint of the author designed to invoke thought leadership for further strategic analysis of a given sector or topic.