At first glance, the connection between banks and start-ups appears surprising and a bit startling. On the surface, it is hard to find a point of contact between the two: while banks are traditionally seen as large and conservative organizations, start-ups are at the other end of the scale; they are small, agile, dynamic, and innovators. The key to understanding the expanding connection and tightening link between them is found in one word - technology.
The banking industry is in the midst of deep structural change in its operating model, due to technological changes that affect both the customer and the competitive environment in which we operate. The exchanges in the financial environment make the connection to technology companies important, and even critical, for continued growth by the banking industry.
We now need to provide a response to the needs of "the new customer", who has characteristics, expectations, consumption habits, and a level of awareness and involvement we did not encounter in the past. He expects the bank to provide him with a user experience at the standard he has become used to in other areas of consumption, while receiving an immediate response anytime, anywhere. He seeks information, but demands simplicity and transparency. He expects to receive offers of value tailored precisely to his needs, and he appreciates involvement and partnership and he is prepared to invest his time in the community in a place where he feels he can contribute.
Creative start-ups with limited resources can change consumer patterns of behavior in a range of classic banking activities: direct banking, such as First Direct, Simple, and Moven, which offer online banking services with no need for branches; Wonga.com and its peers, which offer loans online within minutes and no paperwork; start-ups, such as Lending Club even enable the taking of loans from private individuals without the need for a bank as a mediator; the payments sector has utterly changed following the creation of platforms, such as PayPal; investment is changing, with social commerce elements being added thanks to start-ups such as Israel's eToro, and the hand is still extended.
Historically, the last 20 years show that traditional industries which were considered sound and strong, but which were not properly prepared for the power of technological change and did not adapt to the spirit of the times waned. Eastman Kodak, which failed to understand the change is just one of many examples.
Charles Darwin brilliantly said (I am paraphrasing): it is not the strongest or the smartest that survives, but the one who reacts best to change. This statement is even more correct in contemporary times. This means that the connection with the innovative Israeli start-up industry is a critical means for the banking industry to stay up-to-date and relevant.
Bank Hapoalim (TASE: POLI) was Israel's first bank to lead this trend, launching its fintech (financial technology) program two years ago. The program is designed to create the link between the bank and start-ups to expose the bank to outside innovation and to install innovative financial technologies as part of offering value to the customer.
Bank Hapoalim considers the fostering of fintech companies and cooperation with them to be of primary importance. This activity is another aspect of the bank's promotion of high tech and the small business sector, which is a key growth engine of the economy as a whole.
Dr. Ron Wexler is VP head of corporate strategy at Bank Hapoalim
Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2014
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