The World of FinTech in Coronavirus Times: From Open to Applied Innovation

Mahmoud Bekri

13 May, 2020

The World FinTech Report 2020, from consulting firm Capgemini and non-profit organization Efma, is published this year in quite extraordinary circumstances, given the coronavirus epidemic and the related economic consequences, caused mainly by the lockdowns around the world. The report stresses that “the harsh reality is that FinTechs have moved ‘from disruption to reality,’ and banks that haven’t embraced effective collaboration with startups are struggling to retain and acquire new customers.”

Digital Wind of Change

The report comes at a time when everyone in the financial sector strongly believes that digital transformation is not a luxury anymore. Rather, it may be the only way for many to survive the Covid-19 crisis, or at least to come out from it with the minimum possible damages. Covid-19 constitutes an important historical moment for banks and financial institutions to embrace this unique digital opportunity, through a number of digital initiatives. Meanwhile, various FinTech companies are facing many difficulties raising venture capital funding. As the report notes, “No longer banking industry disruptors, BigTechs and challenger banks have opened a Pandora’s box of sky-high customer expectations. But banks can still thrive by transforming into inventive banks.”

An Open X Platform

The World FinTech Report 2020 “explores how effective collaboration between inventive banks and mature FinTechs can help fill in the gaps from the front to the back office to deliver a meaningful customer and user experience.” It also mentions that the expectations of the customers have become high, as they are more willing to have a hyper-personalized customer experience (CX). According to Laurent Herbillon, Director, Open Innovation, BNP Paribas: “Non-traditional firms have been tackling some of the pain points customers face with incumbent banks. For instance, BigTechs and challenger banks such as N26 offer KYC and onboarding with a fully digital and seamless customer experience; and that is pushing banks to rethink, revamp, and reshape their customer journey.” A satisfying resolution may be provided by an Open X platform: a platform where banks may be more inventive with co-working with different participants from several industries, particularly FinTech. The latter witnessed a shift from being a phenomenon of disruption to a mature profitable industry that is present globally and serving millions of clients. Hence, banks need to consider FinTech as potential partners before they turn into fierce competitors.

Figure 1: What is Open X?
Source: The World Fintech Report 2030.

The Middle- and Back-Office Challenges

Covid-19 is changing the rules of the game, given the lockdowns and the social distancing rules that governments are asking their populations to respect. Covid-19 is sensitizing the financial sector to embrace the digital wave that is leaving no one behind. The digitization is here to stay and to prosper, and the physical branches of the banks are day after day losing their importance to the banking digital platforms. The change from open innovation to applied innovation may open the door to a new strategy for technological innovation, which is suitable for banks to survive during and, more so, after Covid-19. The quality of internet connection is also playing a crucial role in the success of such strategy, particularly in developing countries.

From another side, the emergence of the 5th generation of internet can help in solving this issue. Meanwhile, banks still require to invest more in the middle and back office, as the customer experience is far from involving only the last-mile customer experience, as it also contains two other critical components: the middle- and back-office operations, both decisive for an engaging front-end. Unfortunately, companies neglecting the importance of middle- and back-office innovation find considerable difficulties in competing and satisfying their customers, as they are not fit to the new digital era. According to Capgemini Retail Banking Report 2019 – Voice of the Customer Survey, “Only 6% of banks that have collaborated with FinTechs have achieved their desired and anticipated return on investment. What’s more, Bank/FinTech partnerships have focused almost exclusively on front-office operations.”

Modernizing both middle- and back-office operations is a costly and tough task, but it may be easier and more efficient with the critical transformational processes and the support of FinTechs. A successful synergy, partnership and collaboration between banks and FinTechs require sufficient financial and competent human resources, as well as business and processes maturity on both sides. Adizah Tejani, Digital Innovation Lead at HSBC Retail Banking and Wealth Management, notes: “A hybrid model that includes in-house development capability as well as collaboration with FinTechs is the way forward in terms of digital transformation for established banks and can help mitigate the risk of attracting bad-fit partners.”

A sharp focus on business outcomes will help both banks and FinTechs move from open innovation (proof of concept) to applied innovation (innovation industrialization) and would only have a positive impact on a shared Open X ecosystem. The collaboration at scale to industrialize innovation will be generously compensated by the Open X sharing economy and will lead to a more effective value chain. It also helps transform from an innovation-centric model (open innovation) to an applied innovation that is adopted in solutions and consumed at scale. The survival modus of a collaboration between banks and FinTech in the Open X era is illustrated in Figure 2.

Figure 2: The journey from open innovation to applied innovation
Source: The World Fintech Report 2030.

The World FinTech Report 2020 mentions also that for an effective collaboration with FinTechs, a bank requires the following important traits of success:

  • Building a dedicated and collaborative team with a solid background in startup and enterprise collaboration experience.
  • Timely building of the team’s digital capacities and supporting the innovation culture, using training and technology awareness.
  • Adopting a fail-fast method to innovation, which helps assess the value of an idea.
  • Oversight of the FinTech landscape by investing in hackathons, accelerators, and other FinTech events.
  • Evaluation of FinTech business cases, in the front end, middle or back office.
  • Designing scalable and industrialized market-oriented solutions help in meeting planned business targets.
  • High engagement with experimented consultants in market needs may turn partnerships into success.
  • Be an early adopter of new technologies, particularly the ones creating synergies with FinTechs.
  • Investing in new technologies in order to embrace digital transformation, especially in middle- and back-office operations.
  • Moving away from legacy systems into an open and evolutive platform.
  • Improving the effectiveness of the middle- and back-office operations and boosting the customer experience in the front end.

Furthermore, Nicolas Prince, the CEO of RegData, emphasizes: “Before banks can change their business models and processes, they must consider data protection/compliance concerns. FinTechs/RegTechs can fill in the gap with trusted data protection and regulation platforms.”


The World FinTech Report 2020 emphasizes that it is high time to move from open innovation that only delivers proofs of concept into applied innovations that enable scalable products, ready for mass distribution. It also mentions that “Players with readiness to collaborate at scale and industrialize innovation are the most likely to prosper within the shared Open X ecosystem” and also that “first movers will shape Open X roles, standards, and management”. In several countries, Islamic banks and financial institutions have shown that they are at the forefront of using innovation and technology in their banking operations compared to their counterparts. Optimizing the customer experience would enhance competitiveness among the financial institutions, both conventional and Islamic, for the best of the financial sector and its stability.

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