Need for speed: Three ways banks can up their pace to move at fintech pace

As fintech has evolved and banks have matured their technology infrastructures, we are seeing much more partnership between the two.

Over the past few years, large financial institutions have been collaborating with fintechs by giving them certain challenges to help fix issues or provide specialised services outside of their core offerings.

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It works because banks are trying to do multiple things at a time, while fintechs are typically fixated on smartly fixing one big issue. Fintechs in turn benefit from the scale and infrastructure of banks and quickly create more new products and services they can take to market faster. The model has done well as banks have used these new age models to up 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 collaborate with or invest in and have introduced various channels like in-house incubators and accelerators, opened up 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 advancing 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 getting faster and we are living 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 startup funding contraction, Saudi Arabia's fintech industry has continued to soar. According to the Fintech Saudi Annual Report, released by Fintech Saudi, a body introduced by the Saudi Arabian Monetary Authority (SAMA), the Saudi fintech industry amassed 147 active companies as of mid-2022, a 79 percent increase from last year and a 14.7-fold increase since 2018, showcasing how fast the fintech startup ecosystem has grown in just the span of four years.

Fintechs in Saudi Arabia have raised more than $1 billion over the past five years and 2022 recorded more than $367 million in funding, the largest sum secured by the industry so far.

Banks now need to catch up to their pace in the rapidly changing landscape. One way to capitalise on the growth in fintech would be for banks to create their own sandboxes.

SAMA’s Regulatory Sandbox and the Capital Market Authority (CMA) FinTech Lab have no doubt helped fuel the country's fintech progress. However, banks can speed up innovation with their own sandboxes to test things, fail fast, learn and move ahead quicker. A bank's sandbox can constantly iterate with feedback from its own real customers to find a better product-market fit sooner.

The other advantage of reaching the market sooner is the opportunity to iterate customer experience, but of course, banks already hold a lot of advantages on this front. They are trusted brands, with the right governance and procedures, and great risk management, which is why they have long-term relationships with large numbers of customers.

But banks still need to enhance their digital capabilities more and part of that is the agility of delivery and the agility of changes. Customer experience needs to be continually improved throughout the customer lifecycle, from on boarding to servicing and after sales as well.

SAMA's Open Banking Framework comprises a comprehensive set of legislation, regulatory guidelines, and technical standards, to enable banks and fintech companies to provide 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 the field of fintech. Saudi Arabia's population of nearly 35 million people, where approximately 65 percent are below 30 years old, has one of the highest rates of fintech adoption in the region.

According to Fintech Saudi’s National Fintech Adoption Survey, 74 percent of individuals have had experience in using at least one fintech solution and fintech transaction values have jumped by more than 18 percent between 2017 and 2019 year-on-year, reaching over $20 billion in 2019 and expected to surpass $33 billion in 2023.

Another survey found that 82 percent of Saudi consumers use a digital bank at least once per week and 88 percent of people would choose digital banking services 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 capital of fintech competing alongside London and Singapore, I see fintechs in the country racing to introduce new business models customised to the Saudi market.

Ultimately, moving fast like a fintech is the only way to gain competitive advantage.

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