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A lesson from the fintech disruption: Digitalization has spawned a host of new fintech companies in the once-monolithic financial services market. Like piranha, a fintech or two didn’t much concern the too-big-to-fail set. But, as a new article in strategy+business reports, the global funding for fintech startups more than doubled from 2014 to 2015, to US$11.2 billion. The article’s authors, a trio of PwC fintech consultants, remind us that when piranha start to school, things can start to get dicey for big, lumbering beasts.
While their advice is aimed at bankers, leaders of established companies in any industry that is experiencing digital disruption (is there an industry that isn’t?) might want to consider it. First, the authors warn of the dangers of a wait-and-see strategy, the difficulties of integration in an M&A-driven strategy, and the challenges inherent in trying to catch up with — and compete head-to-head against — agile, digitally savvy competitors. Then, they offer an intriguing alternative (echoed here): “Reorient your firm as the dynamic center of a fintech ecosystem.”
How do big banks do that? “This approach involves looking outward: assessing third-party technology providers based on what they offer and how well you might partner with them, choosing software and apps that fit your financial institution’s business criteria, and interfacing with the providers to quickly offer their solutions as part of a coherent integrated product,” the authors explain. “Focus on what your own company does best — for instance, identifying investment themes, assessing credit exposure, managing counterparty risk, or executing and settling financial transactions. And then tap into the fintech pool, by establishing partnerships, to gain access to innovation that can support or expand your organization’s core market.”
The lesson for incumbents in any industry that’s attracting digital piranha: If you can’t beat ‘em, partner with ‘em.
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