Progressive development of financial technologies has become a challenge for traditional banking activity, making banks to reconsider their business strategy. Banks are responding in different ways to this digital threat.

The Financial Times has spoken to more than a dozen bankers, consultants and fintech executives to analyze how they are doing so. Broadly, they can be grouped into five categories.

Digital attacks

Those in this group consider that the best form of defence is attack. Banks with the most advanced digital strategies, like DBS, have launched their own digital banks to enter new markets or defend their patch.

Goldman Sachs launched a consumer digital savings and lending operation two years ago. Named Marcus — after Goldman’s 19th century founder — the new digital operation has accumulated more than USD 26bn in deposits and lent USD 3bn to customers, generating over USD 1bn of new revenue for the Wall Street bank.

Dutch bank ING adopted a similar approach when it launched Yolt last year, offering customers a way to collate all their financial information in one place, track their spending and saving and get prompts to save money on utility bills.

Acquisitions

Hampered by the vast cost and complexity of maintaining their old systems, sometimes banks find it easier to buy or invest in a start-up that has built a digital platform from scratch.

One that has pursued this strategy is Spain’s BBVA, acquiring a string of digital upstarts including Simple in the US, Atom Bank in the UK and Holvi in Finland. BBVA has invested USD 250m in Propel Venture Partners, a standalone venture capital fund to invest in fintechs around the world.

BPCE, the large French mutual bank formed by the merger of Banques Populaires and Caisses d’Epargne, recently followed suit by acquiring Fidor Bank, the online bank with more than 120,000 customers in Germany and the UK.

Partnerships

Bank bosses complain loudly of an uneven playing field that allows big technology groups to offer financial services without the burdensome regulation that traditional lenders face. That has not stopped some banks teaming up with Big Tech groups.

One example possibly in the making is the potential partnership between JPMorgan Chase and Amazon, which would bring together the US’s biggest bank and the largest US ecommerce company. The deal would give JPMorgan access to 100m Amazon customers using the Prime service.

In Asia, Standard Chartered has teamed up with China’s Alipay to launch a digital remittance service, using blockchain technology to send money across borders quickly and cheaply.

Diversification

While their core payments and lending businesses may be under pressure from digital competitors, some banks are using new technologies to move into new markets.

Dave McKay, Royal Bank of Canada’s chief executive, recently unveiled a strategy to turn Canada’s biggest bank into a broader “platform” offering diverse services, from registering a start-up company to helping people rent their house on Airbnb.

When its customers are looking to buy or sell a home, RBC offers to research neighbourhoods, move furniture, paint a house and even decide which bins to take out each week.

Other banks, too, are branching out. Barclays offers to store important documents, such as passports and birth certificates, on the cloud for customers. Commonwealth Bank of Australia gives businesses insights into the spending habits of its customers through its Daily IQ tool.

“If you can’t beat them, join them”

Sometimes banks decide that the threat from digital competition is so great that they just have to amend their business models.

Ana Botín, executive chairman of Spain’s Banco Santander, said it was seeing her son using a rival service in order more quickly and cheaply to transfer money overseas, that persuaded her to make Santander the first international bank to launch a cross-border payments system based on blockchain.

Five years ago, France’s BNP Paribas launched Hello Bank as a standalone pan-European digital bank. Hello Bank now has more than 3m customers. That said, launching new services is not easy

Switzerland’s UBS said in August it was closing its automated online investment service, SmartWealth, to new clients. The company noted that the “near-term potential” of the robo advisory service intended for younger clients was limited.

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