Earlier this year, while working on an article with fintech start-up TradeRocket, we concluded that fintech represented a tidal wave disrupting the global financial sector. Seven months later our prediction is holding water and fintech is a revolution that represents the number one threat to large banks and industries in the B2B sector.
Indeed, the B2B sector appears ripe for disruption. Despite a customer-centric culture emerging as the new standard, the B2B sector lags in adopting this approach. For example, a recent Gallup poll finds that only 29 percent of B2B customers are engaged, with the remaining 71 percent either indifferent or actively disengaged. This prompted Gallup’s Chairman and CEO Jim Clifton to remark that, “B2B companies across all industries are at risk of being replaced—not because of their products or prices, but because they are failing their customers.”
Simply put, optimized and digitized technology process, online and mobile apps, speed, metrics and personalization are what today’s customers are demanding, and financial institutions are among those that are starting to take notice.
Financial institutions themselves are operating in a new environment following the global economic crisis—specifically, they are dealing with an onslaught of new regulations. J. P. Morgan hired 8,000 compliance and control staff since the crisis, while Goldman Sachs increased its headcount by 8 percent to 36,800, citing compliance as the main area of expansion.
However, adding silos, outdated legacy systems and inefficiencies is not the answer. With next generation technology solutions, automation of manual tasks, real-time transparency across silos, analytics and speed, banks have new tools with which to improve regulatory compliance, processes, security and customer service and experience.
For example, last December, JPMorgan Chase announced a partnership with OnDeck, a leader in online small business lending, to deliver capital to small businesses in as little as 24 hours as opposed to weeks.
Instead of being viewed as competition or a disruptor, banks are creating new strategies to collaborate with fintech firms.
David Sica, a principal at Nyca Partners, told AmericanBanker.com that the increased involvement from corporate investors speaks to the evolution of fintech.
“Two years ago the dialogue was very much about bank replacements,” he said. “For bitcoin, robos, marketplace lenders it was about ‘the new place you’re going to bank,’ ‘the replacement,’ ‘the bank killer.’ Now the market is interested in newer types of products [and] how they can partner with banks to deliver that. You’re also seeing a very different attitude from the banking side. They’re paying attention, knowledgeable about areas, allocating to make venture investments with the intent of partnering and building products with these new companies.”
The rising interest in fintech creates new opportunities for supply chain finance, too.
In the October 2015, Ganaka Herath wrote in McKinsey & Company’s Supply-chain finance: The emergence of a new competitive landscape, that: “Supply-chain finance (SCF) receives surprisingly little senior management attention for a market that presents such large and growing opportunities. Traditionally dominated by banks, the market has more recently been entered by fintechs: specialist financial technology companies that provide platforms and software-based services to support SCF operations. These challengers are changing how buyers and suppliers think about the market, disrupting incumbent financial systems and providers, and starting to command a sizeable proportion of value pools. Success in this new environment will depend on understanding what banks and fintechs are offering, working out what customers value, and quickly planning—and acting on—an appropriate response.”
Already, fintechs control an estimated 10 to 15 percent of the SCF market, adds Herath, thanks to their ability to meet new and emerging customer demands.
Fintechs ultimately help create more efficient financial supply chains. Buyers, suppliers and funders are integrated into the same system for full transparency. New cloud-based software platforms are easily integrated into a company’s existing infrastructure so that buyers reduce accounts payable (AP) invoice processing typically by 60 percent, and simultaneously improve their working capital and choose when they want to be paid, as early as from several days to less than 30 days.
Suppliers, meanwhile, can be paid in advance and track invoices through a transparent invoicing/payment process. Suppliers provide buyers with a discounted invoice, at the buyer’s lower cost of capital. Suppliers can even use an app. Lastly, funders achieve low risk, high return investments and provide much-needed capital to underserved markets.
Fintech made huge inroads in 2016. This is only the beginning.
Wendy Glavin is an expert in marketing communications, public relations, and social and digital services for clients ranging from large global corporations to advertising agencies. During her 20-year career, she has consulted for software companies, a publishing firm and for small businesses and start-ups across numerous industry sectors. For more information, visit http://wendyglavin.com.