The Use of Open Innovation Strategies in Banking
The digital world is growing rapidly thanks to open innovation. Leading financial institutions now engage with external companies supplying technical solutions; resources and know-how. The external sources often spark innovative thinking within the companies and together the teams can come up with innovative solutions. It often requires that the company collaborate using its intellectual property, expertise and assets to generate fresh ideas; develop new skills and reorganize the internal structure of the business.
The result of open innovation is the creation of new forms of banking and financial products. Challenger banks and start-ups have dramatically changed the financial market. This means a lot more competition for traditional banks but for customers it means more choice, better service and a wider range of financial products at lower prices.
FinTech Start-ups Replacing or Complementing Traditional Banking?
The diverse market of financial institutions now available to customers and the continual shift in customer behavior offers opportunities to challengers wanting to draw customers away from traditional banking. Customers no longer automatically gravitate towards traditional banks for their financial needs. Today customers tend to shop around for the best deal and the financial institution offering the most advanced technical services and products. This is a major weakness in the conventional banking business model and in the end could leave traditional banks only will the simple role of asset and liability management.
FinTech companies aim for more than replacing banks and in fact FinTech companies don’t even push for customers to transfer all their financial business to them. Instead FinTech companies target the gaps in the banking services and products; the places where traditional banks are weak. In this way a FinTech company complements traditional banks providing financial services and products that traditional banks can’t or haven’t yet begun to provide. The target of FinTech companies is more focused on providing specific, more technically advanced and more convenient services.
The Speed of Digital Transformation in Banking
The advances in technology are rapid; as soon as banks have adapted to one technical advance another is on the market. Financial institutions need to employ a digital platform that can adapt and support the changing digital solutions now and in the future. Speed is vital but careful planning is even more important. Not only must financial institutions invest in technology they must also adapt the back office processes to eliminate many of the traditional banking steps and support new technology. Digital transformation can be done gradually and be implemented in stages. One of the ways to introduce new digitalization into banking is to set up a separate digital banking subsidiary with its own business model, technology and business processes. This will free the new digitalized banking system of antiquated legacy systems allowing the subsidiary to advance rapidly and independently of the main bank. With each introduction of new technology customers will feel an improvement in banking efficiency.
In today’s world technology is an integral part of everyone’s life; we rely on technology for our social lives, business lives, and so much more, including banking. Present and future banking cannot survive without the intelligent integration of technology into our banking systems. Savvy FinTech companies are aware that banking depends on technology and are meeting the demand with an ever-advancing supply of banking services and software programs to facilitate the banking industry.
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