Banks & Fintechs Must Collaborate to 'Re-Engineer' the Global Financial Services Industry

Megabank's venture capital fund, argues that banks and fintech startups need to collaborate in order to "reboot" the global financial services industry and trigger the 'Fintech 2.0' revolution.

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Banks & Fintechs Must Collaborate to 'Re-Engineer' the Global Financial Services Industry

In a new report, Santander InnoVentures, the megabank's venture capital fund, argues that banks and fintech startups need to collaborate in order to "reboot" the global financial services industry and trigger the 'Fintech 2.0' revolution.

Unlike the first generation of fintech pioneers that are limited to relatively simple propositions such as digital wallets and peer-to-peer lending, 'Fintech 2.0' will deliver fundamental changes to the infrastructure and processes at the core of the financial services industry, according to a new report from Santander InnoVenture, co-authored with Oliver Wyman and Anthemis Group.

The document, called 'The Fintech 2.0 Paper: rebooting financial services', reads:

"Fintech 2.0 represents a far broader opportunity to re-engineer the infrastructure and processes of the global financial services industry, in which the top 300 banks command a revenue pool worth $3.8 trillion."

Released at MoneyConf, the manifesto is a call to action on banks and fintech startups to collaborate with "each providing the other with what it now lacks" in order to realize the opportunity of Fintech 2.0.

"The strengths and weaknesses of both banks and fintechs mean that both will often do better by cooperating rather than by competing. New digital businesses must either grow quickly or die. Banks can offer fintechs immediate scale and critical mass through access to demand."

Mariano Belinky, managing principal at Santader Innoventures, said that "funds alone are not enough," stressing that in order to move forward to the next phase of evolution in financials services, banks need to "invite fintechs to work within [their] industry, even inside [their] own businesses."

Mariano Belinky, managing principal at Santader Innoventures

Along the same lines, Andrew Veitch, director at Anthemis Group, emphasized that "the greatest opportunity in the industry lies at the meeting point of large financial institutions and young, ambitious startups."      

The report also investigates major banking innovations based on the "Internet of Things" (IoT), smart data, distributed ledgers and frictionless processes beyond payments and consumer credits.

"We expect the IoT, combined with the distributed ledger and smart contracts, to dramatically reduce these costs," the report reads.

"IoT technology will provide banks with real-time access to trade data, eliminating the need for manual checks and paper documentation such as bills of lading. [...]

"Distributed ledgers technology has several attractive features. Transactions can be made to be irrevocable, and clearing and settlements can be programmed to be near-instantaneous, allowing distributed ledger operators to increase the accuracy of trade data and reduce settlement risk."

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