Bridging the technical divide: Can mid-size banks compete in the big league?

Aparna Chandrashekar   /    Content Specialist    /    2022-07-14


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    Remember Kodak? The company synonymous with capturing memories? Apart from being immortalized with a definition in the oxford dictionary (Kodak moment), the company famously failed to move its business into digital and that marked the death of a legendary brand.  

    Mid-sized banks face a similar fate if they don’t quickly ramp up their digital transformation and streamline their processes. 

    The competitive landscape 

    Digitisation is old news. The BFSI sector has the second-highest success rate after the technology, media, and telecommunicationssector when it comes to successful digital transformation. But most financial services companies still fail to achieve their transformation goals. Why? Technology has lowered the barriers to entry -  fintechs are attracting millions of new customers, and incumbents face a need for bold action that is becoming more urgent by the day. 

    One way to be successful is to disrupt the disruptors. Large banks have the resources, capital and expertise to launch their own range of digital services - everything from consumer banking, wealth management to payments and other services. Mid-size banks on the other hand are too big to move with the agility that fintechs do and lack the investment runways that large banks have. 

    Digitisation usually requires massive investment and process change across consumer-facing and back-end operations. This becomes an existential challenge for mid-sized banks, which are usually burdened with legacy infrastructure that are rigid, costly to maintain,  and difficult to integrate into other platforms. 

    The competitive edge 

    Banks that prioritize digitisation tend to outperform their peers.  Consider YONO by State Bank of India - 

    • The objective of the app was to have a mobile banking platform that performs all consumer transactions - banking, shopping, lifestyle, and investment. 

    • They created it with a strategic rationale of digital transformation and to create a platform for customer ownership.

    • The result was over 30 million users and 100 e-commerce partners

    Besides, digitisation is also an exercise in the business building for banks. A Boston Consulting Group (BCG) report suggests that a successful digital transformation programme means cost reduction of 15% - 20% for banks, improvement of 20% - 40% in efficiency and error rate reduction, a 20 - 30 point improvement in customer satisfaction scores and two to four-fold acceleration in the delivery of new products and services. 

    Business building, with digitisation at the core, is increasingly seen as an effective way to grow. And unless mid-sized banks act quickly, they will get left behind - saddled with clunky infrastructure and unable to take advantage of the BaaS opportunity.

    Compete where you can win

    If your bank has limited resources to invest in, you need to place strategic bets on your technological future. But where and how should you place those bets? One way to do it is to assess your current strengths, advantages and goals to help you understand where you can bet big on technology. For instance, what makes your bank unique? What areas do you want to grow in? Do you have an industry/geographic expertise that your peers don’t? 

    Once you’ve answered these questions, strategy and technology can come together to propel growth. Whether it's particular geography, catering to a particular industry, or specializing in a specific product - you can select the tech tools, the right partners, and sensible acquisitions that align best with your vision. 

    Instead of trying to compete with the big banks on everything,  you can play to your strengths. 

    Find the right partners (with the right solutions) 

    If banks can’t buy a solution that aligns with their strategic goals, they can rent it instead. Partnering with fintechs or SaaS vendors creates an opportunity for banks to introduce a range of new capabilities in a very short time frame. 

    FinBox’s ready-to-go Embedded Finance infrastructure, for example, provides in-context credit to your customers seamlessly and lenders can go live with it in a week! What’s more, we help lenders with a nudge-driven conversion kit that improves conversions by 50% through automated, cross-platform nudges/offers, and adaptive journeys that require risk-optimized checkpoints.  

    Partnering with the right fintech is a low-risk approach - it reduces the upfront capital investment required, allows the fast launch of new products, easy scale-up of the offerings that work and reduces the overall load of managing different systems in-house.

    Partnerships open the door to licensing sophisticated technology that smaller banks can’t afford to acquire or build.  

    Read: Banking-as-a-service: Risks and complexities to consider before choosing the right partner

    Once a successful partnership is established, the next step is to slice up the bank’s capabilities into products/services that can then be offered as ‘white label’ services.

    Banking services can be unbundled - easier ones like KYC, debit and credit cards, and treasury management can be one catalogue of services. More complicated ones like payments, fixed loans, and employee services may require improvements to back-end operations. 

    A successful unbundling programme that brings in revenues needs to be matched with market demand and the level of complexity.

    APIs for successful BaaS partnerships

    Banks can either build internal capacity with the help of technology vendors (think HSBC and Mulesoft) or acquire a third party (think BNP Paribas and Compte Nickle) or share a platform with a third party (think Raisin).

    Most banks already use APIs as a distribution strategy, but few use it to find the right partner.

    Finding specialized third-party integrators to help design, guide and deploy an API architecture that follows standard banking practices becomes important. 

    At FinBox, APIs are designed by engineers in collaboration with experts from financial institutions. Our focus on developer tools ensures that all the complexity is shielded from developers, enabling them to become productive quickly using our thoughtful abstractions.


    Strategic partnerships for new business building should be nothing less than radical disruption. Mid-sized banks should not only aim to expand their own core offerings, but also create a unique combination of products and services that will disrupt the market.

    Whether it's a financial planning service that uses social media to connect with customers, or a launching an entire ecosystem of services for digital natives, the common denominator should be laser focus on creating differentiated offerings that solve a real problem. When you make customers’ lives easier, you’re more likely to achieve a durable advantage in the marketplace. 

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