The banking and insurance industries are dominated by well-known companies that are deeply embedded in the consumer consciousness. However, as technology has evolved, the competition from startups has intensified.
And the pushback isn’t just limited to startups. Tech giants like Amazon and Google and retailers such as Walmart have each introduced their own array of financial and insurance-based services, offerings that are putting pressure on banks and insurers to find new ways to maintain the oligopolies they’ve each held on to for so long.
Meanwhile, challengers trying to enter the banking and insurance industries feel pressured to simultaneously stay independent and think big. Partnerships between startups and established financial service providers are the key to remaining agile in today’s fast-paced business environment. The ultimate benefit of these partnerships is making customers’ lives easier.
Insurance premium holders, for example, may want to obtain a mortgage on the fly and on their own terms; they want their homes, cars, and families to be covered in the event of emergencies; and they want to understand how to retire comfortably and create a better future for their children. Companies should acknowledge these desires and shift from a product-centric strategy to a consumer-centric strategy where products are developed to make the customer’s life better.
Combining established operational architectures with disruptive technology and new ideas creates a powerful alliance that can succeed in the competitive banking and insurance sectors.
The Challenge of Partnerships
As valuable as partnerships are, bigger enterprises struggle to integrate them into their ecosystems. Sometimes, it’s just how the data infrastructures are built, as many are still not fully modernized. Banks have the appetite to partner, but it’s difficult for them to share the insights needed for startups to provide the best value.
Operational models in the sector can also make it difficult to absorb new services. Startups have to quickly generate revenue, and this means being able to go live within three months. Established companies, however, are more comfortable with project cycles of longer than 12 months.
Banks have long complained that their time to market is too long, meaning the speed at which startups work can provide a huge competitive advantage. However, that quickness doesn’t fit into the existing organizational structure for full absorption. These technical and operational obstacles make it difficult for the two worlds to work together.
Still, some companies are figuring it out. TD Bank, for example, has forged several partnerships with up-and-coming startups. The financial institution worked in conjunction with our company to deploy a scalable, customer-centric strategy through its TD for Me product. The feature is an already embedded recommendation system within the existing TD app that can provide services across multiple platforms that scale with every new data source or use case.
Moven has an exclusivity contract with TD Bank in both the U.S. and Canada for its MySpend app, which acts as a companion to TD’s own mobile app. In addition, TD recently purchased Layer 6, a Toronto-based AI startup, and partnered with Cisco to aid its fintech research and development efforts. By widening its reach as far as possible, TD Bank is giving the market a chance to tell it what works and what doesn’t.
This is a strategy more financial institutions should follow, as it blends the best of both worlds while providing real-world insight into what customers truly want.
Build Better Unions
Financial service providers looking to create lasting unions with startups can do so in three steps.
- View partnerships as part of an ecosystem.
Each partnership can take months or years to come to fruition, yet the market evolves quickly. Every day, we see a new startup that excels at lending, credit cards, wealth management, or fraud management. We see AI-driven services that use big data and machine learning to offer better services or understand risk situations. Established financial service providers should act as marketplaces for all these new technologies to converge and let the market tell them which startup aligns best with their ecosystem.
- Build a technical framework.
Enterprises should adopt a blueprint that allows them to absorb startup services easily. This structure should enable cross-product services that scale with every new data source, use case, or up-and-coming startup.
To quickly absorb, integrate, and orchestrate different types of startups, AI models or other external services require a new type of “App Store” model. This would essentially be a service that understands the situation of the user and provides the right resource by connecting it to the right startup service under the specific circumstances. These services provided by the startups’ partners would seamlessly integrate into the customer experience and within the channel of the bank or insurance company.
A marketplace orchestration strategy helps alleviate the heavy lifting of integrating. For example, say a customer needs a loan, a risk situation that comes with several possible outcomes. An appropriate AI algorithm can monitor all the qualifying factors and expose a customer to different startup services. By creating this orchestration layer, the bank goes from a one-to-one relationship to becoming a complete ecosystem for all financial products and services that could satisfy a customer.
- Communicate benefits through an internal analysis.
Moving into a marketplace strategy requires significant buy-in from an organization. An internal analysis is needed across all business channels to determine the company’s ability to execute such superior services. The question is whether or not each side is able to maintain and make the most of different services being absorbed.
Once these steps are taken, there should be no issues implementing new technologies and bringing in new business units. Modern technology speeds things up on the back end and creates a seamless experience of utility for everyone involved. It takes work to create this environment, but once it’s created, the sky’s the limit.
Partnerships between established financial institutions and emerging startups are nothing new — they just need to scale better and faster. They’re a powerful force that disrupts the industry more than either side could do alone. Seek out these partnerships, and you’ll be well prepared for the next evolution of your business.