“This time around, traditional bank-to-bank competition is not the issue. This new wave of competition is coming from both nimble, innovative, cloud- and mobile-first startups as well as the major technology players largely unencumbered by policy and regulation.”
This is how David Lynch, managing director at Hong Kong-based DBS Bank, describes the current state of play in the global banking sector, with traditional banks vulnerable to the latest wave of innovation coming from startups across the world.
“These companies are able to arbitrage their own scale and customer reach to create new revenue streams,” he says. “For banks quite simply, we have a choice. We can passively observe and, if so, risk seeing large parts of our business lost to these new entrants.”
Or, they can participate. And DBS has chosen to participate, recently hosting an accelerator programme with local venture capital firm Nest, seeking out exciting tech startups in the fintech space.
Lynch says it is a question of adapting to survive.
“Working with startups helps us to drive culture change within the bank. Bankers need to learn from these startups. It is not simply about creating more revenue or protecting what we have,” he said.
And thanks to Nest’s recently-established presence in Africa, African startups benefitted from this arrangement.
He says the increasing evidence of banks working with startups is due to a realization on the part of banks that the way banking is conducted will change, with banks needing to ensure they remain relevant.
This is an uphill battle. Traditional banking has clearly failed in Africa – 80 percent of the population, around 330 million adults, do not use formal or semiformal banking services. But the trump card of the banks is that the relationship with startups is not a one way street. Startups need banks too.
Derek White is chief design and digital officer at Barclays, which itself has just begun running accelerator programmes for fintech startups in Africa. He says banks can play a huge role in assisting startups during their growth.
“If there’s anything that startups need, and that heritage companies can provide, it is customers,” he said.
Providing access to customers, or indeed becoming a customer, is a key component of the accelerators Barclays has launched as part of its Rise open innovation platform. Following previous launches in London, Manchester and New York, the company launched a programme in Cape Town last year.
Barclays worked with 10 startups for a period of three months, eventually signing proof of concept partnerships with three. White believes the relationship between the banks and startups can be very beneficial, with startups helping banks innovate and stay relevant, and the banks providing vital expertise and access to customers and networks.
Rahul Jain is co-founder of South African payments startup Peach Payments, which was one of the three startups to partner with Barclays after the Cape Town accelerator. He agrees partnerships between incumbents and innovative startups can be effective and successful.
“Take online payments as an example. With an increasing share of retail sales shifting online this has become a very important part of a bank’s merchant services business. However servicing online merchants is very different from providing card machines to retail stores,” he said.
“Globally we have seen that very few banks have been able to successfully operate a PSP business. So by partnering with a company like ours a bank is able to retain its transaction processing volume without any major investment in upgrading its service infrastructure to onboard and support these e-commerce merchants.”
Yet Peach Payments have seen the benefits also, with Jain saying parts of their business had truly been accelerated by the Cape Town program.
“The future of this relationship is extremely bright. Both Barclays and us realize that we are operating in complementary spaces and if we effectively leverage our strengths then together we can really make a difference and disrupt digital commerce in Africa,” he said.