Partnering for the future: 3 takeaways from our Money20/20 panel

Digital transformation has been a hot topic in banking for years. Spurred by the continuing growth of digital-only banks, incumbents in the UK and beyond are facing pressure to modernise their products and offer a sleeker customer experience.

But digital transformation goes further than what the customer sees. As a recent insights piece from McKinsey notes, technology will be crucial in helping banks manage everything from compliance to payments and more in the coming years. 

So why are the big players failing to realise this potential? Legacy infrastructure, slow processes and a culture of risk aversion are common culprits, but one thing is becoming increasingly clear: banks can’t go it alone. Partnerships with smaller, more agile platforms and fintech providers will be key to unlocking the value of digital transformation in the coming years. 

To help kickstart that change, PwC hosted a Digital Transformation Summit as part of this year’s Money20/20 Europe. TrueLayer CEO and Co-Founder Francesco Simoneschi featured on an expert panel that included:

• Barbara Baarsma, Chief Economist, PwC Netherlands (moderator)

• Kirsty Rutter, Group Fintech Investment Director, Lloyds Banking 

• Fernando Zandon, CEO, Mambu 

Together, they discussed how fintechs can prove their value to banks, why a streamlined experience is key, the importance of the customer relationship and so much more.

Experience is key 

One key motivator for digital transformation is customer demand. Neobanks have set the expectation that everyday finance should be flexible and intuitive. While many consumers are simply supplementing their existing bank accounts with digital-only offerings, incumbents still need to remain competitive in providing a positive customer experience.

And that doesn’t just apply to individuals. Fernando cites Mambu research that says 9 in 10 SMEs are open to changing banks if they can find one that offers a better digital experience.

“The control that banks had in the past by requiring customers to come into branches is gone,” he observes. 

At the end of the day, banks need to offer services that will appeal to their end customers. And in a world where someone can open an account in five minutes by phone instead of visiting a branch in person, incumbents naturally find themselves at a disadvantage.

Winning back the customer relationship

So banks need to offer a better digital experience in order to retain their customer base. But what about growing it? As Francesco notes, the customer relationship remains a key asset for banks. But a failure to innovate has seen that advantage slowly erode over the past decade.

“My fear is that in the next ten years, banks are going to regret what they haven't done in the past ten years,” Francesco elaborates, citing the success of neobanks like Monzo and Revolut in winning customer loyalty at the expense of their incumbent competitors.

And that disruption isn’t going away anytime soon. If anything, the growth of products like Apple Pay will introduce new headaches, cutting in on both issuing revenues and the customer’s relationship with their bank.

“I think banks are already regretting giving Apple all that importance in the payment journey of consumers,” Francesco says. “Open banking actually gives a lot of that consumer relationship back to the banks. It makes them more relevant and sets them up to deliver incremental value, incremental service to their consumers.”

If banks want to stave off that threat, they’ll need to embrace digital transformation. Partnership will play a key role in making that happen. By harnessing technology like open banking, incumbents can preserve their position of preference with their customers.

How fintechs become partners

Luckily, the tide is turning. Banks already know the importance of a good partnership. By leveraging technology from smaller fintechs, incumbents can modernise while decreasing customer acquisition costs by up to 20 times. It’s no wonder why up to 3 in 4 banks globally are planning to partner up within the next year. 

But not all deals are created equally. Some banks prefer to maintain direct, exclusive agreements with their partners, while others see them as simple vendors. When the latter happens, the smaller company can struggle to maintain buy-in and progress from the larger bank.

So how can banks direct fintechs to provide the most value? In the end, it’s all about choosing partners who can tailor their strategy to your needs. Having a long-term strategy is important, but starting things off on the right foot is crucial, too.

“It’s about trying to show where the value is,” Francesco advises fintechs looking to build partnerships. “Build a sensible business case and try to figure out the short-term incentive that will get you in the door. From there, map out the long-term strategic vision that you need to gather your stakeholders and earn buy-in.

“I think every single financial institution has a different idea of what it means to be strategic for them,” Francesco adds. Ultimately, the right partner will be able to identify growth opportunities and proactively seek to address them.

Once you’ve built that relationship, it’s all about finding the right stakeholders and finding ways for the partnership to grow. As Group Fintech Director at Lloyds, for example, Kirsty is always on the lookout for new departments where her investments could provide value.

“There are always other places around the organisation where I can play matchmaker,” she says. “When things aren't going so well, I speak with both sides, both my fintech portfolio and then the internal customers. Then I often end up brokering a solution — the marriage counselor role as I refer to it internally.”

It can take time and patience to see the fruits of an effective partnership, especially in a large and organisationally complex bank. But doing so will be key to helping banks embrace the next wave of transformation.

For more on the changing face of banking and payments, read our policy team's latest blog, "Charting Europe's path to payments leadership."