Fintechs can Revolutionize the Banking Sector

“The most successful banks will be those that improve agility and reduce cost by using collaboration with Fintech to bring various components together and build the strongest ecosystem.” -EY 2017 Report It has been over five years that this report spoke about the immense value Fintechs can bring to the Banking Sector’s table, and yet, majority of the Banking Sector has not deep dived into the potential of collaborating with Fintechs. What needs to be emphasized is that Fintechs do not pose any threat to the banking sector, in fact the threat lies in competing with the Banks that have onboarded Fintechs into their ecosystem. Though banks face a genuine challenge to implement newer tech in larger enterprises, Fintechs of today are also facing the hurdle of having to cross a long procurement cycle with larger banks. Maybe there can be steps that both sides can take to close this gap between banking and cutting-edge Financial Technology? Lamaa takes a closer look. Banking Sector Can Evolve Further As more SMEs enter the market, there is an increasing trend toward innovative enterprises around the world. This is most apparent in the financial services industry. There was a massive shift in customer dependence from banks to non-banking financial services in 2016, as recorded by a global CB survey. Customers of today, expect the best and most efficient solutions. But, incorporating tech innovation in large-scale operations such as banks is not as easy as it seems. Due to their scale and functional complexity, many banks of today are missing out on business opportunities. This has impacted the overall performance of the banking sector. For instance, let’s take the case of Return on Equity (ROE) of banks. To achieve a better ROE, banking institutions must increase their revenues and reduce costs by a solid margin. This is where Fintechs can play a huge role. Banks can turn to Fintechs to help them reduce costs, innovate operations, and enhance customer experience using top-notch technology that Fintechs have to offer. Fintechs can look at better opportunities from such partnerships as well, for starters, an access to the bank’s existing customer base and reduced cross-country barriers. But as per a recent global survey of 45 leading banks, despite the establishment of a mutually beneficial relationship, only a quarter were extensively engaging with Fintechs. Fintech Collaboration is the Need of the Hour for Banks World today is moving closer to complete digitization and data has become a key factor in driving growth. In line with the changing times, banks must be prepared for restructuring and digitization of processes. As more and more business activities are sourced externally through different platforms and micro services, banks need to focus on a stronger collaborative system to foster innovation. Working with Fintechs is the shortest route for banks to bring about this technological revolution. But how can this collaboration be achieved? By clearly defining improvement goals and then highlighting their operating model to potential Fintechs, banks can begin this much-needed process of change. Lamaa highlights the four steps that can encourage this collaboration, based on an EY report.
  1. Clearly define innovation goals with a Fintech. To fulfil these goals, banks need to form a framework that highlights the process of technological adaptation from conception to launch. This would lead to easy exchange of ideas, open communication between all stakeholders, and establish clear accountability.
  2. Choose an appropriate operating model to match business goals. This model can be centralized, decentralized or hybrid. While a central innovation team that reports to the CTO may be ideal for larger banks, it may also alienate the business units of the bank. A decentralized model, though may allow each business unit to identify problems and innovate quickly, such model could lead to inconsistency within the bank’s practices. A hybrid model is thus recommended to capture the benefits from the two models, wherein a distinct innovation team is set up to ensure closeness with the bank’s business units to provide the right solutions effectively
  3. Select an Engagement Strategy When choosing how to engage with Fintechs, banks must assess the different engagement strategies like collaboration, product/service, acquisition, investments to reach a decision. Globally, it was found that collaboration was the most preferred strategy as most banks preferred engaging in joint operations with the Fintechs, leading to better results and overall growth.
  4. Focus on Team Management and Mediation Managing talent and mediating change is the ultimate step to encourage change. Inculcating innovation in banks requires long-term commitment and a promise to adapt to the needs of the environment.
The Fintech Side of Story In order to aid banks for this positive change, Fintechs too must be clear in defining the nature of innovation they wish to bring to the table and what do they need, in order to achieve that. For example, Lamaa managed to secure the position of one of the top Fintechs of KSA by studying and fundamentally adapting to the way banking functions in Saudi. Lamaa became the first Shariah Compliant Fintech in the B2B Trade Finance in Saudi and went on to successfully collaborate with some of the top banks of the Kingdom. Similarly, if Fintechs ensure operations in accordance with local laws and are aware of the regulatory changes within the sector, a lot of the distance between Fintechs and the doors of nationalized banks can begin to reduce. Such solid partnership model will contribute to a conducive environment and help banks and Fintechs find solutions that lead to much higher returns. With clarity of the costs to be incurred and pricing to be implemented, a more transparent communication can be established leading to a further enhanced relationship between Banks and Fintechs. A Word from Lamaa With Saudi geared up for Vision 2030, there is a greater concentration on innovative solutions in the market. Not only that, but the economic environment is also becoming increasingly open to digitization of financial services. This can be seen by the recent adoption of open banking in KSA. Banks can leverage this opportunity to partner with Fintechs like Lamaa, to generate greater operational value while maintaining their core business activity. Lamaa’s innovative Fintech Solutions can help banks drive growth and work with a wider spectrum of enterprises, both large and small. When the complete potential of this Fintech-Bank Collaboration is unlocked, the world will get to see a different level of growth opportunities in the business sector as a whole. To learn more about Lamaa’s innovative Fintech solutions, please visit
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