Strategies and Business Models of Banks in Front of the FinTech and BigTech Competition

Introduction

The purpose of this chapter is to evaluate selected banks’ strategies and business models as key tools for competing in the digital environment, especially towards FinTechs and BigTechs, from the perspective of the risk culture factor.

The process of banks’ transformation forced by growing competition from non-bank financial institutions and the wave of new technologies as well as the occurrence of many negative external conditions has serious consequences. It makes majority of banks lost and unaware of how to compete in these circumstances. This is due to the fact that “New competition rules bring to the world of strategy a murderous pace, uncertainty and chaos, global competition, pressure to constantly improve and transform the business model of an enterprise.” The functioning of modern companies reminds travelers of the nineteenth century, who try to break through the Amazon jungles with only a compass at their disposal (Obłój, 2002). Nevertheless banks are becoming aware that they must adapt to the new rules of the market game. The main hypothesis formulated in this chapter is the following: the success of the process of adapting banks to new competition rules requires developing individual strategies and business models, while taking into account not only new technologies but also an adequate organizational culture, including a risk culture. The relationships between significant competitive features of banks in the digital environment, risk management based on new technologies and risk culture are presented. For this purposes, the analysis of selected strategies and digital business models was conducted, on how to create a new approach in constructing effective solutions for banks to reduce the risks, especially created by FinTechs and BigTechs.

Authors try to present an original methodological value, first of all based on the logical coherence between three issues: role of strategy, digital competition and risk culture. Secondly, it is related to the differentiation of approach to traditional banks’ business models in the face of contemporary challenges. Thirdly, underestimating the risk culture, as is the case in many financial institutions, generates threats of weakening their market position. T. R. Viscelli, D.R. Hermanson, M.S. Beasley (2017) discuss issues such as poor integration of risk in strategy, weak risk culture and lack of clarity in roles and risk reporting.

The well-known models of strategy, built in the second part of the 20th century, are no longer adequate for the present business world. The competition is becoming more complex, dynamic, discontinuous and uncertain. Industry boundaries are blurring. The life cycles of products and companies are becoming dramatically shorter. Technological progress and a changing environment are quickly transforming business activities. High economic and political uncertainty are becoming increasingly apparent. This trend is likely to continue in the foreseeable future. Under these circumstances, there are various recommendations, how to meet the contemporary challenges of the competition. First-class consulting companies provide advice. For example, BCG proposes (Kimura, Reeves & Whitaker, 2019):

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  increasing the self-learning pace of the organization,

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  the use of ecosystems with the participation of many companies,

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  combining competition in the physical and digital world,

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  preference for new ideas and their quick implementation,

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  increasing resistance in the face of growing uncertainty.

In the further part of the chapter, authors are trying to develop an answer to the question, how banks' digital strategies and business models can meet these challenges and fit into the conditions of the contemporary competition.