Partnerships between financial institutions and FinTech companies: the key to successful blockchain projects
For the last two years, leading banks and insurance companies have been paying increasing attention to blockchain. The possibilities offered by this technology appear immense for financial institutions seeking to develop innovative products. But is blockchain really a silver bullet? When is its use relevant? What options are open to financial institutions? And how can they collaborate with FinTech companies?
Overcoming the “shiny new toy syndrome”
Blockchain is a relatively recent technology that is still in its early stages in terms of being applied in real contexts. While there have been many attempts to develop a blockchain proof of concept (PoC), few have led to practical applications. Under the pretext that blockchain is a “disruptive” technological innovation that has generated significant media “buzz,” companies are so keen to use it that they sometimes forget the precise problems they are trying to solve. This is the “shiny new toy syndrome.”
While using blockchain for the sake of it inevitably leads to failure, identifying a client need that blockchain can meet is a much more appropriate response.
Joining forces with a partner to focus on core business
To overcome the shiny new toy syndrome and move towards practical applications, financial institutions must draw on the technological expertise of blockchain-focused FinTech companies so they can continue to focus on their core business. Distributed ledger technology is relatively recent and some hindsight is required to understand its various features and identify relevant uses. Partnering with FinTech companies can create real value: banks and insurance companies offer knowledge of business processes, a wide client base and solid funding, while FinTech companies bring technological innovation and agility.
The €7 million raised from financial companies (Open CNP, Otium, Nasdaq and Digital Currency Group) by Stratumn, a start-up, in mid-2017 serves as a perfect example of the mutual benefits for these two types of players, offering an opportunity for the companies to form a strategic partnership. A dozen practical applications have already been tested for this FinTech technology, which optimizes and secures data exchanges between different parties in the same sector. Partnerships like these are multiplying. Another example is the partnership between a major French insurance company and Utocat (a Lille-based FinTech company) in association with Julhiet Sterwen (a strategy and management consulting company) to develop fully automated parametric insurance against flight delays, based on “smart contract” technology.
More and more financial institutions are convinced of the opportunities offered by blockchain for their businesses and products, and many investments have been made over the last few years in projects linked to this distributed ledger technology.
This trend will no doubt deepen in 2018. But if future projects are to be successful, the right methodology and the right partner will remain critical.
First published in FinTech Mag