Viewing Digitalization as a chance (1/2)

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Business Cases The financial industry is currently still trying to catch up on their delayed start into the digitalized future. Technology-focussed start-ups approach different points of the value chain to digitally optimize banking processes. On this basis they develop a great number of business cases, all of which follow a similar goal: to simplify the digitalized everyday life of the customer. Disregarding the threat posed by these companies, established banks can view the digitalization as chance - provided they adapt to the challenges and cooperate with FinTechs. Sutor Bank developed a start-up platform for fintechs: it offers solutions and services which are subject to bank-licensing. This makes them an entry point for founders in the financial industry.

Keywords: fintechs, start-up platform, strategy, digitalization

Strategic positioning on digitalization

The digitalization of the financial industry has been delayed and additionally takes a course different from other fields. It was delayed because regulation sheltered it from aggressive attackers, such as Amazon, for a long time. Now the protection ceases to maintain effect: altered customer behaviour, new mobile and digital technologies and a lot funding for the fintech companies are driving the digital development forward. Compared to 2013, investments in the field of fintech tripled to an amount of 12 billion US-$ in 2014 - with Germany lagging behind significantly with 83 million US-$. Fintechs spring up around the world, not only in innovation hot spots like Silicon Valley but also in the traditional financial capitals like London, New York or Singapur. In Germany, fintech capitals are allocated in characteristic federal distribution in Berlin and Frankfurt, followed by Hamburg and Munich. Big financing rounds were lately announced by the big data credit platform Kreditech, Number26, a provider of a mobile giro account, and the credit platform Smava. Number26 received 10 million € and is the first german fintech to achieve participation of an important Silicon Valley investor, Peter Thiel.

The other digitalization

For the same reasons why the digitalization of the financial industry was delayed, it takes another course than in other fields. Banks remain institutions which are subject to regulation; this cannot simply be dissolved by digitalization like in retail, print media or music labels. Fintech start-ups cannot simply be founded by technically adept nerds with a few good ideas according to manuals from „Lean Start-up“ by Eric Ries and „Busines Model Generation“ by Alex Osterwald. Involvement of a bank will remain necessary in almost all proceses of payment, investment and credit.

Digital strategy options for banks

Thus, banks remain strategic options for reorientation in the digital fintech world, at least until the fintechs are big enough to aquire their own banking license or until regulation rules change. In Great Britain for example, licenses are decisively given to „Challenger Banks“. From the pressure the fintechs put on traditional banking business cases on the one hand and the compulsion for fintechs to cooperate with banks on the other hand emerge four „standard strategies“ for banks to evade the same fate as publishers, music labels or the bookselling trade:

  1. They evolve into a platform for fintechs (platform option).
  2. They invest in fintechs (investor option).
  3. They develop their own fintech solutions (developer option).
  4. They cooperate with fintechs at different points of the value chain (integration option)

In concrete application, the borders of these strategy options are not completely clear-cut. Actually they can, in part, be pursued simultaneously. But each of the strategies has its own advantages and disadvantages and requires specific mental, organisational and technical prerequisites.

Digitalization emerging from history

Based on its history and current business case, the Sutor Bank decided on the developer option. Crucial to this is building up this new part based on existing values and competences, that grew from an almost century-old tradition. Since the founding in 1921, focus was laid on asset protection and investment. What began as a service for a small group of merchants from Hamburg has evolved into an established institution for asset consulting and management. Since the end of the 1980s, the Sutor Bank has built up an additional B2B branch in which experts develop and manage individual products and services for financial distributors. To create these products and the correlating processes, the Sutor Bank has its own section for application development, which continually keeps on developing individual portfolio administration platforms. This platform currently manages 200.000 customer portfolios.

Digitalization - from marketing to fintech cooperation

Having started with marketing techniques, the bank began to develop digital services concerned with asset consulting and management as early as 2013. Since then, part of their offer is a first self-consultation tool and a complete set of funds portfolios for the most common investor profiles. The latter are administered by the asset management and offered via website. Due to the early and intense activity in the field of fintech, contact with many fintechs who were looking for banking partners could be established. This prompted the idea to broaden the existent B2B business by a digital component, a bankig platform for fintechs.

Digitalization as a chance (2/2)