Financial services giant Citi reckons fintech startups are missing out on a major opportunity to disrupt institutional banking. Indeed, it’s inviting entrepreneurs to do so.
“Opportunity is enormous,” said Naveed Sultan, global head of treasury and trade solutions for Citi, speaking during a fireside chat at the Mobile World Congress tradeshow this week. “And the reason I’m saying that is everyone that you know dynamically wants to evolve to a better place.
“Therefore if fintech can come and pick up a part of a value chain which we believe they can execute better than us, at better economics and scalability, the banks have inherent incentive to pass that activity on to fintech and move on to the value added space.”
“Contrary to the common belief, I think there is more opportunity for collaboration with fintech than disruption,” he added. “Particularly on the institutional side.”
Sultan said Citi is already “very engaged” with the fintech space, scanning “thousands” of startups every year — saying it’s taken an equity position in “about 30” so far.
It has established four “innovation centers” in Singapore, Dublin, Tel-Aviv and London to act as its feelers on the fintech scene. And its investments are focused in four key areas, according to Sultan — namely: Client experience; scalability; operating model agility; and innovation.
“Pretty much every one of [the fintech startups it’s invested in] have an operating relationship with the businesses,” he continued. “So we are using their technology and integrating into our solutions. And helping them commercialize, appreciate our equity, as well as delivering a better solution to the client.
“So I think the philosophical change is you cannot get to the market fast enough on a proprietary basis. So you have to continuously engage in the broader ecosystem and wherever you believe there is a value point you engage in it.”
While around $21 billion was invested in fintech startups last year Sultan noted that a majority (71 per cent) is on the “last mile” — so either focused on the user or the client experience (“consumer banking, insurance and areas of those nature”, as he put it).
Which he argued means that fintechs playing on the institutional side “actually have a far greater stance in terms of collaboration”. (Which presumably is Citi-speak for ‘you’re more likely to stand a chance of getting to work with us and/or having us as an investor’.)
“I can give you many examples. If you look at what happened in Europe. Single Euro Payment Area. Lots of banks lost their revenues but the banks didn’t want to compete. We were the first bank who took the position we don’t want to compete on the inefficiencies of the market. We want to compete on the value added.
“You look at the cost structure of banking today, you look at compliance, you look at risk, you look at KYC [know your customer], you look at data everywhere. Just out there we’ve met quite a few fintech. So there is already a lot of push. But I would encourage more and more fintech to make a foray into different components of the institutional banking. Because consumer is already happening to a very great deal. And the banks, if your preposition is really good, the bank will have absolute economic incentive to come and join hands with you,” he added.
“So I think we can create a win-win situation — collaborate. You’ll be successful, banks will be successful. And this notion that fintech is going to take banks out, let me tell you that the reports of banks’ demise is greater exaggerated.”