A Definitive Guide On Understanding Fintegration

By Amanda James on The CapitalWhat Is Fintegration?Fintegration is essentially a partnership between banks and fintech companies. On one hand, it allows banks to benefit from the agility, innovation, and technological strength of the fintech firms while on the other hand, it permits fintech firms to borrow the reputation, experience, and investment capital of banks.As a result, a number of personalized and cost-effect product portfolios are created, which end up benefiting the customers in numerous ways.With Fintegration, both legacy institutions and fintech enterprises get to leverage their respective powers and use them for mutual advantage.Fintech firms can build upon their digital assets and deploy them to enhance the reach of banks, whereas banks can provide infrastructure and funds in order to improve the overall Fintech experience.At present, many financial institutions across the world have partnered with multiple Fintech firms, in a bid to offer unique, productive, and customer-centric solutions.These include Citibank, Barclays, HSBC, Deutsche Bank, and Goldman Sachs.Even in India, the collaboration between Open and many partner banks like ICICI has laid the foundation for the development of a strong Fintegration network.Nonetheless, Fintegration still remains a relatively new territory. This is why before delving into its uncharted waters, it would be prudent to understand why Fintegration can be a life-changing experience for the entire financial services sector.Why Fintegration?Be it personal finance, data analytics, wealth management, or regulatory technology, there are many areas of commonalities between banks and fintech firms. Their cooperation and integration across different verticals can invariably yield surprising results. In fact, the outcomes which can be reaped from a symbiosis between legacy institutions and fintech enterprises have been detailed in a report prepared by The Economic Intelligence Unit (EIU).The report titled ‘The Disruption of Banking’ is basically a compilation of surveys conducted by the EIU. It records the opinions of about 100 fintech executives and senior bankers while talking about why they think Fintegration can prove to be the harbinger of a new financial era. As per this report, approximately 33% of the bankers believe that a healthy admixture of banks and fintech institutions will define the future of financial services sector.More so, according to the respondents, Fintegration is soon going to become a highly plausible scenario because:Fintech Lacks Legacy And FundsUnlike the conventional banking institutions, Fintech primarily lacks both, legacy and funds. This is because Fintech firms:Have scarce experience in risk management.Do not possess the requisite investment capital.Need to work with a limited product line.Face an absence of infrastructural legacy systems.However, the greatest strength of Fintech companies is their culture of agility, innovation and strategy. They bring on board the very best that technology has to offer.Banks Do Not Have A Strategic VisionBanks, on the other hand, do not possess a strategic vision, especially when it comes to going digital. They also fall short in:Dealing with security breaches.Suitability to counter rapid change.Constraints imposed by legacy technology.Regulatory pressures & lack of clarity.Despite these shortcomings, banks excel in terms of their massive experience, steady infrastructure and wide customer base. These attributes lend banking institutions a certain dominance and effectiveness.Nevertheless, the strengths and weaknesses of banks and Fintech firms are more complimentary than competitive. They can be analyzed on the basis of the World Fintech Report, which was conducted by Capgemini in 2018. As per this survey, a joint venture between banks and fintech firms will have to take certain crucial aspects into consideration. These are:Customer baseRegulatory behaviorLine of productsInvestment capitalRisk managementInfrastructureResource useFintegration is actually the beginning of a collective win-win. It benefits all the stakeholders in a plethora of unique, competent and fruitful ways. These largely include:1. Benefits To Banks — Banks become capable of delivering a delightful customer experience.- Their basket of services starts having more innovative products.- A space for customer-centric initiatives is created & efficiency is enhanced.- Intermediaries are eliminated and transactional costs are reduced.2. Benefits To Fintech — Fintech firms become equipped to scale their business and improve ROI.- They receive greater investment capital and a higher amount of funds.- Their risk management capabilities improve significantly.- The customer reach, inclusivity and penetration of Fintech firms is widened.3. Benefits To Customers — The services & solutions offered to customers become better organized.- Their expected risk is reduced while their functionality is increased.- Security, guaranteed by regulatory authorities is assured.A wide range of products are delivered right at the customer’s doorstep.Challenges Of FintegrationAlthough the benefits yielded by Fintegration are immense, the process also comes with a distinctive set of challenges. These are:Integration Planning — The present state, the transformation, the expected future and every other accessory of planned integration needs to be well-considered.Compliance Issues — As both sectors merge, the resultant entity would need to be governed by authorities which can identify standards, prepare guidelines and ensure compliance.Data Security — Frequent audits will have to be conducted in order to ensure that the data being shared via Fintegration is ring-fenced and secure.Infrastructural Legacy — The legacy infrastructures of both, banks and fintech enterprises are vastly different. These will have to be brought together through cloud-based services.Migratory Hindrances — Migration from one institution to another and vice-versa can often pose great hindrances. To deal with this, processes will have to be streamlined in a time bound manner.These challenges can easily be converted into opportunities if standardized and homogeneous integrative procedures are followed by the book. A successful partnership would only result by gaining better access, inducing higher value and re-imagining current relationships.What does the future of Fintegration look like?As a new era of technological disruption dawns, the development of a partnership between fintech firms and banks will start altering the way financial services are rendered. Accessibility and inclusivity will become the hallmarks of success and customers will begin to get a variety of distinctive options to choose from.However, for this partnership to sustain, collective strategies will have to be developed. These will further need to be aligned with the goals of both, business and welfare, so that the maximum possible advantages can be reaped.Financial institutions that take the time to define their fintech strategy and align it to their business goals will be best positioned to help forge the future of financial services. The road to a successful collaboration between banks and fintech is definitely promising.The wedding bells are certainly ringing, where all the stakeholders are sure to benefit, especially- THE CUSTOMER, who will receive lower prices and more innovative products like expense management, lending, Credit card with other features all in one platform like how Open is doing it and better services in a transformed banking world.The Capitalhttps://medium.com/media/3b6b127891c5c8711ad105e61d6cc81f/hrefA Definitive Guide On Understanding Fintegration was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Author: Amanda James

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