For all the talk of partnerships with fintechs, banks still need a multi-pronged digital strategy that includes a standalone operation or 'beta bank', writes Brian Caplen.  

Despite all the scare stories, banks are well placed to survive in an open banking world of fintech competition. A recent survey by a major European bank found that of the 50% of customers prepared to hand over their data under open banking, the majority would only give it to their existing bank. Of the rest, only half would give it to a fintech, which means that many fintechs will need to partner with banks if they really want their business propositions to lift off.

Partnerships between banks and fintechs are in vogue as both parties need each other to maximise digital potential. But James Haycock, the founder of UK digital design studio Adaptive Lab, which was recently bought by Capgemini, says “the stakes are too great [for banks] not to have a portfolio response to change” which includes core transformation, internal labs, external incubators, venture capital funds that invest in fintechs and standalone operations. 

The challenge in transforming a bank is to get people working differently, and sometimes that can only be done by establishing what Mr Haycock calls a "beta bank". The beta bank has its own leadership and headquarters and does everything differently.

This allows a bank to start with the customer proposition and then organise to fulfil it without any existing constraints. The big problem of building on top of a legacy system goes away as the beta bank has its own technology stack. The bank can make maximum use of the cloud in a way that incumbent banks find difficult.

Most banks are engaged in core transformation and partnerships but if these are not delivering, the beta bank could provide the answer.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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