Consumer banking as well as transfer and payment services are sectors predicted to receive the biggest blow from the emergence of fintech. A 2016 PricewaterhouseCoopers report, for example, discussed how this transition could affect margin spreads and lead to market share losses as well as information and privacy threats. Traditional service providers are also expected to see a decline in the number of consumers.

Such concerns lead to questions: Are conventional financial institutions becoming more fragile with the emergence of fintech providers? Conversely, are fintech companies ready to compete with established financial service providers?

As a mature industry, the banking sector sees its competitive edge lying on the availability of established facilities and technology to serve customers. However, banks, operating under a heavily regulated environment, tend to respond more cautiously to changes.

With the rising popularity of digital technology, fintech industry players have emerged to provide mobile, non-face-to-face services for customers.

With such potentials, collaboration between banks and fintech firms are likely to happen. Based on a survey conducted by International Data Corporation (IDC) Financial Insights, one in three banks are prepared to collaborate with fintech companies, with a quarter of them looking to acquire a fintech company.

In Indonesia alone, the fintech industry has received positive support from regulators. Bank Indonesia (BI) and the Financial Services Authority (OJK), for example, have issued several regulations regarding transactions facilitated by fintech companies to push for a more solid ecosystem. The central bank has also launched a special office to aid the growth of the fintech industry.

Banks are now becoming more open to possible collaboration with fintech companies in an effort to offer an optimized customer experience. One of the banks’ involvement schemes in fintech collaboration is through an investment partnership that involves venture capital (VC) companies. VC firms can invest in fintech companies to open up collaboration with banks, so that they can grow healthily and complement the entire financial ecosystem.

Another form of collaboration between banks and fintech firms is that regarding the accessibility of Application Programming Interface (API). API is a set of commands, functions and protocols that are used by programmers when developing software for a specific operating system. API enables programmers to utilize standard functions that interact with a given operating system. In banking, API allows for a condition in which banks and fintech companies can exchange data while ensuring a high level of security.

The opening of API access for fintech firms could potentially boost business as long as banking security is guaranteed. The reality is that, in the near future, all money is moving digitally, making data openness an inevitable necessity in the banking industry. API accessibility would allow fintech firms to provide better data processing and analysis, as well as quicker decision-making processes.

An open API could also push for customized service provisions for different market segments. Through an open API, more services could be developed for fund transfers and account balance information, among other things.

Thus, collaboration is the key that will spur the growth of both the banking and fintech sectors. Through collaboration, fintech start-ups could focus on solving problems, while banks could share their knowledge on the financial industry, including on how to deal with legal hurdles in the provision of fintech services. To ensure a healthy ecosystem, there must also be a clear guideline to regulate cooperation between banks and fintech service providers.

The writer is member of the Indonesian FinTech Association and partner at Central Capital Ventura.

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