Look Out for Financial Sector Zombies
- By Lachlan Colquhoun
- September 05, 2022
Around 80% of fintechs and 20% of traditional banks which operate in today’s market would either cease operating or go into “zombie mode” by 2030 due to the pace of digital transformation and its impacts, according to the founder of a leading Indian fintech.
Kunal Varma, the co-founder and chief executive of Indian digital bank Freo, told an IBM Consulting Banking Transformation and CDOTrends forum last week that the “world of financial services is evolving faster than most organizations and a lot of banks can keep up.”
“Digital transformations today are being used across the board to enhance workflows to introduce automation, reduce process inefficiencies, reduce human error and make data transmission easier, and make data extraction, storage, and processing more intelligent to allow for feedback loops and improve customer experience,” Varma said.
“But everybody is at a different stage of evolution.”
Speaking at the forum, the theme of which was ‘Change Drivers for Banking and Finance Markets in APAC,’ Varma said that “speed is the name of the game” in financial services today, but that many organizations were challenged by the cycle time of their digital implementations, and this was leaving many players vulnerable.
“If the cycle time of this is 12 or maybe 18 months, the technology is getting outdated every 12 or 18 months,” he said.
“We talked about collaboration, and that’s one of the ways not to get left behind because it's not always easy to out-innovate others.”
Time for the fintechs
Looking at the Indian market, Varma said the public sector banks were left behind by those from the private sector in the 1990s, but now it was the turn of the fintechs to do the same.
“It is a natural selection and evolution, and it even applies to the fintechs,” he said.
“I think this is a huge wake-up call for everybody, including fintechs and banks, who are trying to identify whether they will retain the technology they use or need to change their business model or overhaul their DNA.”
“If the cycle time of this is 12 or maybe 18 months, the technology is getting outdated every 12 or 18 months”
Varma said there was a “whole bunch of open spaces” in the market, and he challenged the fintech sector to develop new and more mature business models to address them. One of these areas was regulation and compliance, where customers highly valued transparency and trust.
“Fintechs need to invest heavily,” said Varma.
“It's not just about putting television ads at the time of the latest sports event; it's about sticking around and coming across as a genuine, trustworthy, reliable organization.”
Another perspective came from long established and regional leading Singapore bank, where Kailash Ramalingam is head of consumer and technology banking.
Ramalingam told the panel that the reality was that “the customer doesn’t need a bank, the customer needs a job to be done.”
While banking might disappear, the function that banks perform will still be essential, and they would be the “backdown” of transactions, even if banks themselves become “invisible”.
He saw a future where banks would collaborate with fintechs as “ecosystem partners,” harnessing the power of data to fulfill customer needs.
“Amazon moment”
Finally, from the vendor community, Nick Wilde from Thought Machine was asked the same questions about the banking landscape in 2030.
Wilde, whose company specializes in new platforms for digital native banks and fintechs, said that the banking industry had not yet had its “Amazon moment”.
“Look at what Google and Facebook have done to the print media and advertising as well; banking hasn’t had that yet,” said Wilde.
He quoted 1994 comments from Microsoft’s Bill Gates, who said, “banking is necessary, banks are not.”
“Bill Gates might have been wrong on the timing, but what he said is coming,” said Wilde.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].
Image credit: iStockphoto/Grandfailure