Three ways banks can pick up the pace to move at the pace of fintech
Ultimately, for banks, moving fast as a fintech is the only way to gain competitive advantage, suggests Network International MD for Saudi, Abdulaziz Al-Dahmash. (Included)
As fintech has evolved and banks have matured their technology infrastructure, we are seeing much more partnership between the two.
Over the past few years, major financial institutions have partnered with fintechs by giving them certain challenges to help fix problems or provide specialized services outside of their core offerings.
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It works because banks try to multitask, while fintechs are usually fixated on fixing one big problem in a smart way. Fintechs in turn take advantage of the scale and infrastructure of banks and quickly create more new products and services that they can take to market faster. The model has done well as banks have used these new time models to boost their bottom lines and go after market segments that were difficult to capture or had specific and sometimes niche requirements.
Today, most banks are actively looking for fintech firms to partner with or invest in, and have introduced various channels such as in-house incubators and accelerators, opened their APIs and even created funds to invest in the startups. These investments help banks support fintech growth and benefit the bank both from the investment itself and through promoting the marketplace.
But now the next chapter in the story is for banks to expand into even more innovative territory so they can move at fintech speed. The reality is that the pace of change in fintech is only accelerating and we live in a state of constant disruption. Consider that the number of fintech firms in the Europe Middle East and Africa (EMEA) region nearly tripled between 2018 and 2021, according to Statista.
Closer to home, despite a global start-up round of funding, Saudi Arabia’s fintech industry has continued to soar. According to the Fintech Saudi Annual Report, published by Fintech Saudi, a body introduced by the Saudi Arabian Monetary Authority (SAMA), the Saudi fintech industry gathered 147 active companies by mid-2022, an increase of 79 percent from last year and a 14, 7-fold since 2018, showing how quickly the fintech startup ecosystem has grown in just four years.
Fintechs in Saudi Arabia have raised more than $1 billion in the past five years and 2022 recorded more than $367 million in funding, the largest sum secured by the industry so far.
Banks must now keep up with the rapidly changing landscape. One way to capitalize on the growth in fintech is for the banks to create their own sandboxes.
SAMA’s Regulatory Sandbox and the Capital Market Authority’s (CMA) FinTech Lab have undoubtedly helped drive the country’s fintech progress. However, banks can accelerate innovation with their own sandboxes to test things, fail quickly, learn and move forward faster. A bank’s sandbox can constantly iterate with feedback from its own real customers to find a better product market fit faster.
The other advantage of reaching the market earlier is the opportunity to repeat the customer experience, but of course the banks already have many advantages on this front. They are trusted brands, with proper governance and procedures, and good risk management, which is why they have long-term relationships with a large number of clients.
But banks still need to improve their digital capabilities more, and part of that is agility to delivery and agility to change. The customer experience must be continuously improved throughout the customer’s lifecycle, from onboarding to service and after-sales.
SAMA’s Open Banking Framework comprises a comprehensive set of legislation, regulatory guidelines and technical standards to enable banks and fintech companies to offer open banking services.
The Open Banking Framework seeks for all banks in the kingdom to adopt open banking – a move that is part of Saudi’s ambitious Fintech Strategy, a national plan that strives for the nation to become one of the leading countries in fintech. Saudi Arabia’s population of nearly 35 million people, of which approximately 65 percent are under the age of 30, has one of the highest rates of fintech adoption in the region.
According to the Fintech Saudi National Fintech Adoption Survey, 74 percent of individuals have had experience using at least one fintech solution, and fintech transaction values have increased by more than 18 percent between 2017 and 2019 year-on-year, reaching over 20 billion USD in 2019 and expected to exceed USD 33 billion in 2023.
Another survey found that 82 percent of Saudi consumers use a digital bank at least once a week, and 88 percent of people would choose digital banking over visiting a branch in person.
With the government’s plans to triple the number of fintech companies in the kingdom by 2025 and transform Riyadh into a global fintech capital to rival London and Singapore, I see fintechs in the country racing to introduce new business models tailored to the Saudi market.
Ultimately, moving fast as a fintech is the only way to gain competitive advantage.
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