P3.2 THE NEED TO COLLABORATE IN A HYBRID FINANCIAL SYSTEM
Instead of assuming that the end of the established banking sector is near and that newly emerging financial technology startups will rule the world next year, it may be better to analyze the challenge from a distance.
In Part One, we explained the status quo of FinTech and their aspirations for the future. We also briefly touched upon the business models and operational processes of online lending platforms to help us understand the position of marketplace lending in the FinTech ecosystem. In Part Two, we examined in detail how banks operate when they underwrite loans, and laid out the framework for robust financial analytics. In this third part of the book, we will now combine the two viewpoints. Instead of comparing FinTech and established bank lending and declaring one or the other the winner, let's think of a way to merge the best of both worlds. When we acknowledge the strengths of both actors, we lay the foundation on which they can collaborate constructively. Both sides of the equation are already aligned, and banks and FinTech startups overlap in many ways. When they both integrate each other's expertise, they can strengthen their business models to align them with the demands of digital customers.This part of the book begins with an analysis of the profitability and risk of a portfolio of marketplace loans. A stress test will serve as the basis to develop more robust analytics that should help professionals and investors in making better informed financial decisions about marketplace loans. We will then examine the digital dilemmas that banks and FinTech companies face, which leads us to several strategies to cope with the challenges. The emergence of a hybrid financial sector still has several hurdles to overcome, but if banks and FinTech companies manage to tackle them, we might end up with a financial system that is more transparent and more resilient. The final two chapters chart a path to the hybrid financial sector and introduce unified analytics as the starting point.
NOTES
1. Broeders, Henk and Khanna, Somesh (2015) Strategic Choicesforbanks in the digital age (McKinsey and Company), http://www.mckinsey.com/insights/financial_services/Strategic_choices_for_banks_ in_the_digital_age.
2. Ibid.
3. Jenkins, Patrick and Alloway, Tracy (2015) “Democratising Finance: Big banks eye marketplace lending push” (Financial Times, 28 January 2015), http://www.ft.com/cms/s/0/93837c4a-a6db- 11e4- 9c4d-00144feab7de.html.
4. Ibid.
5. Christensen, Clayton (1997) The Innovator’s Dilemma (Harvard: Harvard Business School Press).
6. Chu, Catherine and Smithson, Steve (2007) “E-business and organizational change: a structura- tional approach” (InformationSystemsJournal, 10/2007), http://onlinelibrary.wiley.com/doi/10.1111/ j.1365-2575.2007.00258.x/abstract.