# Launching Speed Boats from Cruise Ships: How incumbents can take on fintech challengers
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-01-28
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Digital Transformation in Financial Services: Evolution vs
Meta Description: Discover how digital technology is reshaping the financial industry. Transition to greenfield businesses and embrace fintech-like operations for growth and
URL: https://financedigest.com/launching-speed-boats-from-cruise-ships-how-incumbents-can-take-on-fintech-challengershtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/finance-11-1736838949000-compressed.jpg)

_By **Eugene Danilkis,** CEO, Mambu_

Digital technology has changed financial services.  It has facilitated innovation, increased competition and made the mobile customer experience the key differentiator.

![Eugene Danilkis](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/eugene-danilkis-450x450-1736838948969-compressed.jpg)

Eugene Danilkis

While this is good for customers, established institutions have realise that spending years and millions building an ecosystem expecting the technology, [customer experience and product mix to last for the next](https://www.financedigest.com/the-next-generation-of-customer-experience-in-banking.html "The next generation of customer experience in banking") decade, no longer works.

They have realised that tech-enabled competitors pose an existential threat.  Standing still is not an option so they have to evolve. The new route being adopted by many banks is no longer transformation, but instead transition: launching greenfield tech-enabled [businesses to capture market opportunities](https://www.financedigest.com/new-report-of-fuel-conditioning-system-market-with-size-growth-drivers-market-opportunities-business-trends-and-forecast-to-2028.html "New Report Of Fuel Conditioning System Market With Size, Growth Drivers, Market Opportunities, Business Trends And Forecast To 2028") and pave the path to a lower-risk and higher-reward technological evolution.

**The Strategic threat**

These competitors possess the characteristics which are increasingly important to consumers and shareholders alike. They are lean, agile, provide a best-in-class [customer experience](https://www.financedigest.com/why-transforming-the-back-office-is-key-to-customer-experience-success-in-financial-services.html "Why Transforming the Back-Office is Key to Customer Experience Success in Financial Services") and are able to grow and scale rapidly.

This embodies a strategic threat with McKinsey estimating that legacy financial institutions will see profits decline by up to 60% by 2025 if they fail to evolve, a figure which should be motivating incumbents to look outside of traditional practices for [growth and sustainability](https://www.financedigest.com/robot-operating-system-market-is-witnessing-a-sustainable-growth-due-to-increase-in-demand-scrutinized-in-the-new-analysis.html "Robot Operating System Market is witnessing a Sustainable Growth Due to Increase in Demand Scrutinized in the New Analysis").

**Operating like a fintech**

Not all of these new entrants are startups, although given their operating models one would think otherwise.  Large tech companies are starting their own [banking and lending businesses](https://www.financedigest.com/prime-bank-and-agam-spark-lending-revolution-for-individuals-and-business.html "Prime Bank and AGAM spark lending revolution for individuals and business"), leveraging their resources and existing customer bases to expand into new markets and launch new products.

Many of these companies have one distinctive characteristic in common: they are operating like fintechs, working independently of their parent organisation, adopting a new culture, and using the latest [technology to provide a best in class customer](https://www.financedigest.com/verasity-joins-the-brightcove-marketplace-to-provide-customers-with-proprietary-ad-tech-technology.html "Verasity Joins the Brightcove Marketplace to Provide Customers With Proprietary Ad-Tech Technology") experience.

[**Growth opportunities**](https://www.financedigest.com/aluminum-cans-market-tremendous-growth-opportunity-trends-with-key-players.html "Aluminum Cans Market Tremendous Growth, Opportunity, Trends With Key Players")

While [banks can continue to rely on the upper end of the market](https://www.financedigest.com/digital-inclination-to-drive-the-mammalian-cell-banking-market.html "Digital Inclination to drive the Mammalian Cell Banking Market") to provide steady revenue streams, long term growth lies in geographic expansion, improving customer experience and focussing on underserved markets and SMEs.

Millennials and [digital natives have turned away from traditional banks](https://www.financedigest.com/digital-banking-traditional-banks-vs-fintech-providers.html "Digital banking: Traditional banks vs. fintech providers") in search of mobile alternatives.  They are drawn to the best products and experience, and banks with the right level of [service can win over this large market](https://www.financedigest.com/car-rental-service-market-is-forecasted-to-grow-at-a-7-2-cagr-by-2031-comprehensive-research-report-by-fmi.html "Car Rental Service Market is forecasted to grow at a 7.2% CAGR By 2031- Comprehensive Research Report by FMI").  Mobile-only [banks like N26 are leading](https://www.financedigest.com/banks-miners-lead-ftse-100-lower.html "Banks, miners lead FTSE 100 lower") the way. Their strategy is simple, offer [customers the best digitised products on one platform](https://www.financedigest.com/rationalfx-drives-customer-acquisition-with-regtech-platform-from-trunarrative.html "RationalFX drives customer acquisition with RegTech platform from  TruNarrative").

It has helped them [grow their customer base exponentially](https://www.financedigest.com/the-attention-deficit-hyperactivity-disorder-therapeutics-market-to-grow-at-an-exponential-substantiation.html "The Attention Deficit Hyperactivity Disorder Therapeutics Market to grow at an exponential substantiation"). What’s most impressive about their ​growth​ ​is​ it is ​primarily​ ​based on​ ​referrals​ ​from​ ​existing​ ​customers, ​underlining​ ​the​ ​importance​ ​of​ ​a​ ​positive experience​.​ ​

SME lending also offers a significant [opportunity for growth](https://www.financedigest.com/renal-cyst-treatment-market-covid-19-industry-analysis-future-trends-opportunity-growth-regional-outlook-and-forecast-2028.html "Renal Cyst Treatment Market COVID-19 Industry Analysis, Future Trends, Opportunity Growth, Regional Outlook and Forecast 2028").  The European Commission’s SME Performance Review estimated just under 23 million small and medium enterprises generated €3.9 trillion in value add and employed 90 million people in 2016-2016, and McKinsey has identified a $350 [billion untapped lending](https://www.financedigest.com/hsbc-launches-1-billion-lending-fund-for-female-entrepreneurs.html "HSBC launches billion lending fund for female entrepreneurs") opportunity within this sector.  This [growth sector has seen numerous new entrants who are using digital technology](https://www.financedigest.com/why-anti-spoofing-fingerprint-technology-is-essential-for-the-continued-growth-of-digital-payments.html "Why anti-spoofing fingerprint technology is essential for the continued growth of digital payments") to navigate a complex lending environment.

If banks and lenders are willing to change their thinking and take a digital approach now, they can benefit from the same opportunities as they have a distinct advantage, the ability to leverage their [balance sheet](https://www.financedigest.com/ecbs-villeroy-lays-out-plan-for-shrinking-balance-sheet.html "ECB’s Villeroy lays out plan for shrinking balance sheet") to help them navigate a rapidly evolving market.

**Launching speedboats**

One path is acquisition but this is an expensive option complicated by having to find a [company with the right fit for the business](https://www.financedigest.com/5-saas-tools-to-help-your-company-business-save-money-in-2022.html "5 SaaS Tools To Help Your Company/Business Save Money in 2022"). There are also only few acquisitions to go around, and making old and new cultures and processes work, while retaining the [top talent of the fintech](https://www.financedigest.com/top-fintech-trends-for-2021-enabling-smart-and-secure-finance.html "Top Fintech Trends for 2021 Enabling Smart and Secure Finance") after their big payday has always been a challenge in acquisitions.

Given the technology available, a cleaner option is to [build a digital banking](https://www.financedigest.com/key-considerations-for-building-an-inclusive-digital-banking-experience-fit-for-the-future.html "Key considerations for building an inclusive Digital Banking Experience fit for the Future") spinoff which can operate like a fintech.  If we look at established [banks as cruise ships:  large](https://www.financedigest.com/swiss-national-bank-makes-another-large-draw-on-fed-swap-line.html "Swiss National Bank makes another large draw on Fed swap line"), expensive to operate, process heavy and slow to manoeuver, the spinoff can be seen as a speedboat:  independent, cost-effective, agile and lean.  It can be launched within twelve months, unrestricted by [geography and able to penetrate new markets](https://www.financedigest.com/the-drug-repurposing-market-to-virtually-grow-beyond-geographies.html "The Drug Repurposing Market to virtually grow beyond geographies").

A spinoff has to be seen as an investment in an innovation arm, [created to address a specific market need and unimpeded by traditional](https://www.financedigest.com/growing-exports-of-non-traditional-jamaican-crops-creating-sustained-opportunities-for-ackee-market-sale.html "Growing Exports Of Non-traditional Jamaican Crops Creating Sustained Opportunities For Ackee Market Sale") organisational processes.  Given the freedom, it could leap ahead technologically by prioritising APIs, automation, cloud and mobile first thinking and be able to demonstrate results and [customer impact](https://www.financedigest.com/impact-com-fiscal-year-h1-2021-1-5b-valuation-150m-in-funding-bigcommerce-integration-69-customer-growth.html "impact.com Fiscal Year H1 2021: .5B Valuation, 0M in Funding,  BigCommerce Integration, 69% Customer Growth") in a short period of time.

Banks can derive value by leveraging technology to streamline operations, [automate processes and significantly reduce overall cost of doing business](https://www.financedigest.com/what-businesses-can-achieve-with-microsofts-full-suite-of-process-automation-tools.html "What businesses can achieve with Microsoft’s full suite of process automation tools").  By [accessing the very technology used by the new players allows them more focus externally on clients and service instead of internal systems](https://www.financedigest.com/telehealth-monitoring-to-rule-the-the-transseptal-access-systems-market.html "Telehealth monitoring to rule the The Transseptal Access Systems Market") and processes.

**New people, thinking and processes**

Technology, while a differentiator, is just one cog in the machine.  Real transformation is only possible with a change of people, thinking, and processes.

This means new leadership incentivised to [drive success](https://www.financedigest.com/a-winning-team-how-corporate-champions-can-drive-successful-collaborations.html "A winning team: how ‘corporate champions’ can drive successful collaborations  ") of the spinoff and not conflicted between the bigger organisation and the new venture. This leadership has to instill a culture of innovation and continuous change from the start to enable it to act like a startup without being [held back](https://www.financedigest.com/burberry-held-back-by-china-lockdowns-and-u-s-weakness.html "Burberry held back by China lockdowns and U.S. weakness") by legacy processes.

**First mover advantage**

This speedboat approach is already gathering speed with established institutions seeing the first mover advantage and launching spinoffs to grow outside of traditional structures.

We have been working with a large [European banks](https://www.financedigest.com/european-banks-cash-in-on-rising-rates-as-clouds-gather.html "European banks cash in on rising rates as clouds gather") will are launching digital spin offs.  [ABN AMRO’s](https://www.financedigest.com/abn-amros-q3-profit-jumps-as-interest-income-recovers.html "ABN Amro’s Q3 profit jumps as interest income recovers") New10 and TBC Bank’s Space are just two examples.  New10 went from concept to [launch in 10 months and Space](https://www.financedigest.com/nasa-spacex-launch-4-more-astronauts-into-orbit-on-flight-to-space-station.html "NASA, SpaceX launch 4 more astronauts into orbit on flight to space station") took just eight months.

They saw the [opportunity in the market](https://www.financedigest.com/food-premix-market-opportunity-analysis-and-industry-forecast-up-to-2031.html "Food Premix Market: Opportunity Analysis and Industry Forecast up to 2031") and chose to take a digital approach to reach this underserved sector.  The [digital bank operate like fintechs and using agile and lean technology](https://www.financedigest.com/how-banks-can-use-digital-technology-to-become-more-sustainable.html "How banks can use digital technology to become more sustainable") that allows them to go to market quickly, tailor their products to specific market and regulatory needs, and scale operations.

**Learn from the market**

[Banks and lenders cannot keep moving in the same direction if they want to see](https://www.financedigest.com/europes-banks-brace-for-russia-fallout-while-u-s-banks-see-limited-pain.html "Europe’s banks brace for Russia fallout while U.S. banks see limited pain") themselves as relevant and innovative. They need a long term strategic approach not a tactical fix.  Through digital spin offs, they can allow themselves the flexibility to play at speeds at which startups operate with increased [time to value](https://www.financedigest.com/automotive-timing-chain-and-belt-market-to-be-valued-at-us-10-20-bn-by-2027-comprehensive-research-report-by-fmi.html "Automotive Timing Chain and Belt Market to be valued at US$ 10.20 Bn by 2027 – Comprehensive Research Report by FMI").

Those [currently on cruise ships have the opportunity](https://www.financedigest.com/global-sulfate-free-body-wash-market-business-opportunities-current-trends-growth-market-forecast-global-industry-analysis-by-2029.html "Global Sulfate Free Body Wash Market: Business Opportunities, Current Trends, Growth, Market Forecast & Global Industry Analysis By 2029") to launch a speedboat or two. The [key is to learn from what works best in the market](https://www.financedigest.com/alanine-market-key-players-swot-analysis-key-indicators-and-forecast-to-2029.html "Alanine Market Key Players, SWOT Analysis, Key Indicators and Forecast to 2029") and build on that, eliminate aspects that did not go as smoothly, then change tact and direction.  This is what innovation is about: the ability to explore and quickly iterate on what works in the market, and in the process, redesign banking for the [21st century](https://www.financedigest.com/taking-the-pain-out-of-payments-for-the-21st-century-worker.html "TAKING THE PAIN OUT OF PAYMENTS FOR THE 21ST CENTURY WORKER").


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---