Partnership is the Future of Blockchain Tech

Partnership

Partnership will ultimately benefit both legacy financial players and fintech startups. Image: Shutterstock

The experts agree: banks will save time and money by adopting or collaborating with fintech startups rather than building their own distributed ledger solutions from scratch.

Fintech providers’ interest in partnership is obvious, but why would banks be open to this kind of collaboration?

In a recent study, NTT Data consulting found that 78% of banks’ IT budget is spent on maintaining legacy systems, many of which are due for updates but maintained through a combination of inertia and regulatory structure. Seventy percent of bankers surveyed do not feel their processes can quickly adapt to change, but the market will force change soon enough. The same study found that consumers increasingly want and expect real-time and intuitive financial transactions, with millennial customers driving the forefront of that demand.

The experts agree: banks will save time and money partnering with #fintech startups. Tweet This

It is under these conditions of antiquated infrastructure in financial services and the growing customer demand for faster and cheaper services that experts are chorusing in favor of partnership between banks and fintech startups.

A recent Accenture survey pointed out that the process of collaboration with technology providers is not new to financial services, and that distributed ledger technology can be viewed as the latest in a series of cost-saving changes:

“Traditionally, financial services incumbents have been comfortable partnering with others in their own industry – especially where there is an opportunity to share processes or services that are considered ‘non-core’, and which help all collaborators either reduce their costs or create a new market opportunity.”

TechCrunch predicts that in as little as a decade, banks will have adopted or adapted better financial technology in order to serve customer demand for faster and better services. Like all the experts, this news source agrees that banks aren’t going to look very different on the outside, but that the infrastructure is inevitably headed for change:

“In 10 years, most banks will still be public-facing brands. Their role as a safe deposit box for our cash will continue, but consumers’ rising standards will force them to rise to the occasion, ensuring a best-in-class experience is a core component of their offering. This unlikely alliance is just over the horizon. Both the old and new worlds will have no choice but to find a way to join forces, looking like startups while working like banks.”

McKinsey reports that banks’ established regulatory compliance and licensure provides a steadying complement to fintech startups’ bold and often unknown technological offerings. In short; banks and fintech need one another to succeed:

“Collaboration will ultimately prove an extremely promising proposition, allowing incumbents to reduce their mounting cost pressures and increase their operating efficiency, while helping the newcomers to remain a part of the big picture in the long term.”

McKinsey has also pointed out that cooperation will benefit banks and their customers sooner and more efficiently than competition. Fintechs seeking to compete by disrupting financial services could be adopted or absorbed by banks seeking to offer fast, seamless service to match top-of-the-stack payment platforms like ApplePay:

“An overarching challenge for banks is how to ‘open up’ structurally—with respect to how they leverage partnerships and how they permit other entities to access their capabilities. Those banks that pursue a thoughtful approach to meeting this challenge will be best positioned to evolve their business models and find new sources of value for their customers while performing well financially.”

In a recent published Global Insight, Morgan Stanley specified the potential benefits of cooperation between established players and technology providers like Ripple to optimize cross-border payments:

“International payments have friction in them with multi-day settlement times and a relatively slow bank settlement system. Moving to a blockchain should shorten settlement periods, speed up transactions and reduce the risk of fraud.This would become even more important as intra-country payments systems increasingly move to real-time, including the US in October 2016. SWIFT and Ripple are both leading interesting suggestions for international payments.”

Deloitte published its own report to educate and advise banks and financial service providers on the possible applications of blockchain technology. Their recommendation was in favor of the partnership model, stressing that the moment for action is already upon us:

“Organizations across industries should aggressively explore scenarios in which blockchain could reinvent parts of their operations, value chains, or business models. They should look for ways blockchain could help bring new efficiencies to costly, slow, or unreliable transactions and introduce new models for partnership and collaboration.”

At Consensus 2016, attendees reported that although the name of the event refers to cryptographic consensus, this consensus on the future was a common thread at the conference. Integration with existing legacy players in the financial system is the key to commercial blockchain projects.