Digitalization is set to transform most aspects of the financial industry. Far from resisting it, banks should be embracing these fundamental changes.
There is no doubt that, thanks to advances in digital technologies, the financial industry is entering a period of radical change. Transaction and settlement, savings and lending, capital raising, investment management, market provisioning: it is difficult to find any area of banking that is not being disrupted by the current wave of digitalization. With the rise of virtual banks, crowdfunding, alternative payment platforms, robo-advisors and the like, digitalization is also spawning significant new competition for incumbent institutions.
In light of these developments, some have been predicting the demise of traditional banks. This is overstating the case. Digital disruption is by no means only a threat. Quite the contrary, it is spurring industry innovation in a number of very positive ways. It is also encouraging collaboration among industry participants, driving cultural change.
Today’s banks are reaching outside their walls, working with startups, joining innovation platforms and collaborating on new ideas in ways that would have been unfathomable a decade ago. They are also collaborating more internally, for example by using social media-like tools to promote direct communication and the sharing of ideas among staff.
UBS and startups – learning from each other
Inspired by the “permission-to-fail” culture found in startups, banks are becoming much more open to experimentation as well. This is certainly the case at UBS. We have put a strong innovation process in place, one which generates lots of ideas internally and has clear gates to let in good ideas from the outside. We also work closely with the technology community in our innovation labs in Zurich, London and Singapore.
By taking our people out of the bank and immersing them in a lab environment, we give them space to think creatively. We also give them the freedom to make mistakes. In this way we can generate – and test – a far greater number of interesting ideas than would otherwise be the case. In London we have opened our lab in a FinTech accelerator, sharing space with some 150 startups engaged in researching and developing new products and services for the financial industry. This lets our experts be part of the larger conversation, staying on top of developments and helping to shape our industry’s future.
Far from being enemies, FinTechs are very much part of our conscious endeavor to embrace change. While some are looking to compete directly, in our experience the majority of FinTechs are more interested in collaborating with banks. After all, there is more to banking than just bits and bytes. Banks are a storehouse of financial and market expertise of the kind most FinTechs lack. Banking also remains very much a relationship business, and here too FinTechs have much to learn.
For these and other reasons, we are confident that banks will not be going away any time soon. In our opinion, digital disruption should not be seen as a danger, but rather a healthy challenge, driving change and opening up exciting new possibilities.
With this in mind, we also feel it is imperative for the Swiss financial center to promote a strong FinTech ecosystem. Only with close cooperation between the country’s banks, its FinTech startups and the regulator will Switzerland be able to keep pace with today’s strong global competition.