The digital economy is changing at a rapid pace and 2014 is set to feature a number of exciting innovations. Mike Laven, CEO of The Currency Cloud, argues that there is scope for banks to learn from and work more closely with the start-up community

The financial services sector is now beginning to replicate the digital overhaul experienced by the music industry just a short while ago, with IMRG blaming HMV’s demise on its failure to recognise the social shift towards digital spending – a trend which is now the ‘norm’. Nowadays, consumers are taking huge interest in digital financial services as well, due to rising customer dissatisfaction at existing banking services.

Digital services are gaining notable ground now that tech start-ups can build bespoke products and services to meet new consumer banking needs quickly and easily. Not only that, these programmes can also be white labelled by bigger companies or banks to use as way of gaining competitive ground and an innovative status within the industry…

…it all sounds quite easy doesn’t it? Well, unfortunately, it’s not as easy "a+b = c". There is still a lack of cohesion between tech start-ups and the banks. Currently, there isn’t enough collaboration between both parties. However, many commentators (including myself) believe it is these partnerships which are capable of driving a digital boom in the financial sector. In a nutshell, banks should taking heed from these start-ups or ‘FinTech’ – financial technology – firms when considering and forming any innovative, forward-looking, digital banking strategy.

The problems banks are facing are underpinned by their out-of-date business models, which rely on them being the "jacks-of-all-trades". This image is de-prioritising innovation in specific areas, and instead, banks are dedicating budget to building on top of old systems and not addressing problems with emerging channels. This operating model is not fertile ground for innovation.

When we look to where banks can innovate, we can easily predict that front-end investment into online and mobile banking channels returns great rewards and will continue to be in the digital innovation spotlight for some years to come. For example, we are seeing innovation in payments taking developing economies by storm.

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In Kenya, the tremendously successful M-Pesa enables an unbanked population to enjoy access to financial services through their mobile phones; a true metamorphosis of cash from analogue to digital, with more than 80% of the Kenyan adult population now using the service. Not only that, adoption in the US is growing, with one in three Americans using mobile banking according to the US Pew Research Centre. These examples provide a nice snapshot of how this industry is driving the acceptance and adoption of mobile banking services in many countries.

The growing popularity of these front-end digital channels is not something banks want to ignore. Let’s face it – any roll-outs by our incumbent banks need to work across a hundred million accounts, so banks are understandably reserved in case there is a technical hitch.

Take HSBC, for example. We cannot overlook its effort to compete in mobile banking. They have been trialling smartphone/tablet banking products in Hong Kong and Asia, along with contactless/NFC mobile payments in New York. It will be great to see the finished result soon.

Initiatives like the ones above show that banks are slowly embracing more innovative channels, and I am sure we will see more pilot schemes coming into the fore over the next year.

But, we need to see more corporate and banking partnerships with the start-up community to really see digital reform across the board. Partnering with disruptive technology brands earlier on in the digital innovation cycle positions banks as ‘pioneers’, rather than ‘reactors’ to market trends.

FinTech incumbators – Level 39 and the FinTech Innovation Lab – actively call for more collaboration between start-ups, tech companies and entrepreneurs to help digitise financial services. Just last week, the FinTech Innovation Lab launched its search for developers with the "next big" start-up idea.

The initiative gives developers and entrepreneurs access to banks, including HSBC, Barclays and JP Morgan, providing a platform to prove how their products will have a meaningful impact in the financial services industry. This set-up should then tempt future partnerships. Given Barclays lost the man behind its critically acclaimed Pingit technology last week to a start-up firm, entrepreneurs and developers with fresh ideas are what the banks need to still remain ahead of the curve.

The banking industry is at an inflexion point – we either use these innovators to move towards a digital future, or we stay where we are. We cannot move forward without partnering up established corporates and banks with younger firms. I completely understand that, due to the age old legacy of internal bank bureaucracy, partnerships can be hard to forge.

Yet there are innovation units within banks dedicated to finding exciting solutions, including the innovation divisions found at Citigroup. It is these units we need to talk to more to isolate how start-ups can support a larger bank’s overall digital strategy.

As an example, the managing director of Citi Ventures – Chitra Narashiman – has advised start-ups that Citi Ventures’ incubation efforts focus on disruptive technologies which have the potential to be used against big banks in the future. To this end, all start-ups must think about they can really challenge the status quo to gain visibility in what is a very competitive pitching process.

There are definitely the possibilities and initiatives out there to make these partnerships possible. I’m confident that, in the next year, we will see some great innovations which will support the current digital transition taking place in the financial services sector. I am very happy to be a part of it.