Observers of the South African startup space may have noticed something interesting happening over the past couple of years: the country’s big banks, almost without exception, have suddenly become very interested in entrepreneurs.
While they haven’t suddenly opened up the funding gates, they have either launched, or started sponsoring, startup initiatives around the country.
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That interest doesn’t stem from a sudden outbreak of altruism towards entrepreneurs, but because they’re profoundly aware that without the kind of technology created by innovative startups, they won’t survive.
In fact, technology research house Gartner predicts that by the end of 2019, 25% of retail banks will use startup providers to replace legacy online and mobile banking systems.
Slow incumbents
The startups building these technologies have spotted that the incumbents in the space have been slow to respond to new requirements. According to Gartner, vendors often do not support open architectures that decouple the presentation of services from the services and transactions themselves and, crucially, enable the bank to bring new and existing processes together to offer innovative digital services.
This lack of agility has allowed newer players to meet both customer and bank needs for channel integration and dynamic customer experiences that make banking easier to accomplish on the devices customers want to use. These vendors challenge the traditional — often incumbent — vendors of traditional online and mobile banking and core banking solutions.
“Startups and emerging providers of digital banking platforms offer banks interesting opportunities for innovation,” said Stessa Cohen, research director at Gartner. “However, CIOs must prepare to manage the challenges of evaluating and selecting new vendors that may not have proven track records in the financial services vertical or may simply be new and untried without an extensive customer base. It can be difficult for CIOs to justify investment in their solutions to their boards and regulatory agencies, but don’t use that as a reason to exclude new vendors.”
“This is why many banks developing digital banking strategies to meet customer demands have sought out new providers to replace their existing online and mobile banking solutions with digital banking platforms,” said Cohen.
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