Bespoke Banking: A Fintech Love Story

By Can Akkuş, Munibur Bhandari, and Zack Styskal

As fintech companies steal market share from long-standing financial services institutions, bank heads are inceasingly focused on getting competitive through digital enablement. Digital transformations happen iteratively, though, so banks need not look for an immediate, enterprise-encompassing operational pivot. Instead, financial services institutions could find success in partnering with fintech peers, capitalizing on product management and operating efficiencies.

Barriers to Entry

In the wake of the 2007 Financial Crisis, government agencies imposed regulations on banks to prevent the re-emergence of “Too Big to Fail." These regulations required banks to raise capital, reserve liquidity, and escalate stress testing and capital planning, drastically augmenting banks’ operating costs. As such, employee time increasingly turned toward governance. These operating changes, coupled with deteriorating faith from customers who interpreted the crash as a systemic flaw in institutional banking practices, significantly altered the direction and innovative capability of the banking industry. With bad margins, crippling regulations, and contracting growth, it seems plausible that some banking functions will turn into mere utilities – necessary, cumbersome to manage, and potentially unprofitable.

Financial technology offers a lean and efficient way to approach banking with lightning-fast iterations that offer customers positive, relatively easy banking experiences. Unhindered by many of the banks’ regulations and sprawling networks, fintech cuts costs and improves service. And while pure fintech organizations may not yet capture high levels of institutional bank market share, startups could certainly fill gaps. What’s more, fintech is gaining traction by leveraging API (application program interface) tools, allowing software components to integrate and operate across distinct, otherwise unrelated companies and technologies.

"In the future... we hope to build systems that allow us to 'push' information — and only that information agreed to by the customer — to that third party." – Jamie Dimon, CEO JPMorgan Chase

What’s next in banking?

Company heads lead successful digital transformations as fundamental business model shifts, and banks are already rebranding. In a 2015 Goldman Sachs podcast, Lloyd Blankfein, the bank’s CEO and Chairman, famously said “When you ask me…'what might this technology be doing to disrupt the industry or our company?’ It’s a little bit of a funny sentence, because we are a technology company.”

As consumer demands evolve, fintech companies will claw at market share. To stay relevant, the C-Suite must contend with their greatest issue: banks are not inherently digital organizations. But it is their inability to nimbly face digital change that will give competitive banks headaches in the years to come. To thrive, banks should become digital companies that happen to do banking.

How do financial institutions get to feel more like Goldman? APIs.

Taking security and plausibility into account, fintech companies would successfully and rapidly fill many gaps by working with banks to expand and innovate on existing personal banking infrastructure. Application Program Interfaces (APIs) allow for quick and replicable interconnection of system components, letting existing platforms work together to build new software and applications. Google, PayPal, FedEx, and other ground-breaking giants use APIs to share information, moving transactions and users through systems at a scale impossible to achieve independently. Consumer demands are met by leveraging each company’s strengths.

And while fintech players turn to banks, banks can do the reverse. Institutional players should explore enabling APIs by exposing existing software and stores of data to fintech firms. Through integrating systems and channels, banks bypass regulations and streamline back-office connectivity. Furthermore, through APIs, banks position themselves at the center of the platform, providing the data fintech needs to create services, products, and user experiences. This is the modernization the industry desires—assimilation into a service culture of mass-customization.

BaaS: Banking as a Service

We consider APIs, and their respectful business transformations, key to banks' survival and relevance in a mobile-first world. By sharing APIs via proprietary software with nimbler, less restrained tech companies, banks can innovate faster and create new revenue streams. In effect, institutional banking can pivot from regulated utilities to bespoke services—a marketplace of solutions for personalized banking.

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About the authors:

Zack Styskal is a Principal in Slalom's Strategy and Operations practice in New York City. He focuses on product management, digital operations, and leads Slalom's digital strategy subject matter community globally. 

Can Akkuş is a Management Consultant in Slalom’s Strategy & Operations practice in New York City. He specializes in process design and re-engineering for clients in capital markets, insurance, and technology.

Munibur Bhandari is a Management Consultant in Slalom’s Strategy & Operations practice in New York City. He focuses on business strategy, operating models, and process excellence for clients in financial services and technology.