PA Consulting’s financial experts, Stefan Knapp and Søren Bligaard Ameland, discuss how established players and newer fintech companies can create synergies through the ecosystem of the financial sector.
A lot can be gained if established actors and newer fintech companies can work out mutually beneficial synergies through the ecosystem of the financial sector. But that requires both companies to position themselves correctly, and partnerships to be formed with strong foundations, PA's experts assess.
Technology, the market, and the demands of customers are changing ever faster. Therefore, it is crucial that companies react with matching speed when new developments occur – whether they are large banks, pensioning companies, or insurance companies, or fintech businesses.
The ability to form partnerships and make use of the ecosystem is one way of keeping up with a changing world, states Stefan Knapp, expert in Financial Services at PA Consulting.
“Established actors and fintech companies are mutually dependent on one another, because they have different competencies, which they do well to draw on through partnerships and through the ecosystem as a whole,” says Knapp.
Søren Ameland Bligaard, expert in Fintech & Financial Services at PA Consulting, adds:
“We have entirely moved away from the thought of ‘disrupt or die’. Today, companies should not be as focused on outdoing one another. They should rather be concerned with benefitting from one another and cooperating.”
While the new fintech companies typically are good innovators and frontrunners of new technology, the larger companies can offer access to data, customer bases, large-scale operations, and capital. In other words, there are advantages both with the older actors and with the new talent on the team – if both parties manage to cooperate and use the ecosystem.
Finding your place in the ecosystem
Before a company can be successfully integrated into the ecosystem and create value, it needs to have identified its position in the market. That in turn requires clarification on how the ecosystem can be utilized to create new and necessary services for the customer.
“The new fintechs especially need to take a deep breath and sort out what they are capable of and who that is interesting to. They need to look at the market and then position themselves within it,” says Knapp, and elaborates that fintech companies then need to practice pitching their service to larger companies:
“Fintech companies are typically born out of very specialized knowledge, so the next step is to formulate a clear and sellable version of that. The short answer is that they need to book some meetings, so they can get out and gather some experience.”
Partnerships as the foundation
Partnerships are an important part of any ecosystem, and therefore it is crucial that companies build theirs on the right basis. Both Knapp and Bligaard have seen companies entering partnerships too quickly because “partnering with hip fintechs” was trendy. They emphasise that this is not the right way forward.
That first of all requires the companies to put themselves in their prospective partner’s place and understand the context of both parties. Then, they need to understand the wider perspective of how they can utilize and supplement each other’s competencies the best.
The inevitable culture clash
When large companies with long histories team up with fintech start-ups, which are often small-scale and have young founders, there is a risk of challenges and clashes. PA Consulting therefore advises both sides to consider potential differences in culture and management beforehand.
“It is important that large and established companies understand and encourage the culture that from the beginning has helped create the special competencies of fintech companies,” says Knapp. Bligaard agrees:
“Do not underestimate the cultural differences that can be present from the beginning. There needs to be a plan for how communications are conducted, to minimize the risk that information or deals fall by the wayside.”
Smaller companies are typically characterised by more informal communication within the company, and often all employees are familiar with the background for the partnership with a larger company. That is not necessarily the norm in larger companies, where a single person inside the structure may have sole responsibility for the partnership. It is therefore absolutely crucial that the partnership is anchored to the whole company, so responsibility for it is clearly defined and it is not overly sensitive to changes in employees.
“Expectations need to align on the goals, short-term and long-term, of the partnership. Therefore, it is a good idea to make very practical plans for working around any eventual challenges,” says Bligaard.
Knapp and Bligaard emphasise that an ecosystem can take many forms, and that interesting synergy can also happen between two large and established companies, or between several smaller fintech start-ups.
“Instead of just minding yourself and your own business, there is a lot to gain by engaging with the ecosystem. But it is something that needs to part of the company’s culture,” says Bligaard.
Knapp predicts that companies in the future will be quicker to enter and exit partnerships, and that it will simultaneously become more important for them to occupy a clear niche inside the ecosystem.
“Because the market is moving faster and faster, being able to quickly enter a partnership will come to be a core competence of companies – and the same goes for being able to quickly leave a partnership that has become irrelevant. The challenge will be how to secure good partnerships knowing that they may only last a very short time,” says Knapp.
The good news, according to PA Consulting, is that current developments are creating more and more partnerships. That means established actors are increasingly aware of the opportunities in becoming a part of the ecosystem around them.