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OVERVIEW SCOTIABANK CASE STUDY 1
Ahmed Ali
University of Cumberlands
Overview Scotiabank case study
OVERVIEW SCOTIABANK CASE STUDY 2
Abstract
This paper provides an overview of the Scotiabank case study. It discusses the success
factors of the Scotiabank and Financial technology (fintech) Kabbage partnership. It
overviews the circumstances that influence Scotiabank to form partnerships with fintech.
Furthermore, this study highlights the proposed sectors and a geographic market where
a fintech partnership would enhance Scotiabank's value. The author of this study
provided recommendations to enhance the executives' plan. Finally, this study overviews
the challenges Scotiabank management faces in the blockchain sector and the
implications for the bank's blockchain partnership strategy.
Keywords— Blockchain, Fintech, partnership
OVERVIEW SCOTIABANK CASE STUDY 3
Introduction
According to Hsieh, Vergne, and Weil (2017), in 2017, Scotiabank's vice-president
“reflected on his recent presentation to the financial technology (fintech) firm Kabbage
Inc. (Kabbage)” and the successful partnership considering the possibilities in of
blockchain innovation. According to Hsieh et al. (2017), the Kabbage partnership has
helped Scotiabank management overcome gaps in Canada and Mexican businesses by
digitizing small businesses, making them more cost-effective, and providing a better
customer experience. Moreover, the partnership between Scotiabank and Kabbage
offered training experience, transferred digital banking knowledge, and provided a
valuable guideline for prospective partnerships. According to Paulet and Mavoori (2019),
the “largest banks have acknowledged the importance of new technologies to enhance”
performance and customer satisfaction. The development of innovations has led to the
introduction of the so-called Fintechs. According to Hung and Luo (2016), a
combination of "Finance" and "Technology" refers to the combination of both business
domains that will lead innovative financial services to shift from an in-house method to
rely on external providers to deliver system solutions promptly.
Furthermore, Hung et al. (2016) stated disruptive “innovation could open new
businesses” and job opportunities. However, “fintech businesses can choose to be the”
"disruptors" — professionals who enter the market to compete against existing financial
institutions or "collaborators"—primarily targeting other financial institutions such as
banks. Hsieh et al. (2017) stated Kabbage and Scotiabank's partnership “is an example of
how banks and fintech are working together” to provide clients with a more reliable
banking service.
OVERVIEW SCOTIABANK CASE STUDY 4
Success factors in the Scotiabank-Kabbage partnership
According to Hsieh et al. (2017), the success factors in partnership between
Scotiabank and fintech company Kabbage depends on internal (between partners) and
external (outside of the partnership). “Internally, the two partners’ overall
compatibilities” in terms of technology, structure, culture, and brand play an important
role; therefore, the two organizations support each other’s goals. Moreover, Scotiabank
was able to cooperate with Kabbage in a successful framework through management,
which was critical to ensure that culture and vision aligned between the two
organizations.
Furthermore, Hsieh et al. (2017) stated Kabbage managers’ level sponsorship
helped overcome many compatibility challenges, which decrease coordination and
communication costs. “Externally, securing accountability to the client was significant to
success.” Clients trusted the fintech brand, and accountability was considered a crucial
factor. Even though banks mainly deal with large businesses, lending money to small
innovative businesses also enhances partnerships. Ultimately, with trust and cooperation,
a partnership succeeds (Hsieh et al., 2017).
Scotiabank's model's applicable conditions
According to Hsieh et al. (2017), Scotiabank and Kabbage technology licensing
partnership started in 2016 in Canada and Mexico. The Kabbage partnership created a
new approach to small business lending. Both organizations operate and manage a
business collectively to add value to their services (Hsieh et al., 2017). The Scotiabank-
Kabbage partnership more of a technology licensing since Kabbage was a technology firm.
According to Hsieh et al. (2017), this model works because Kabbage used an agile test-
and-learn approach, and non-traditional data and advanced analytics have proven that
OVERVIEW SCOTIABANK CASE STUDY 5
digitized lending for small businesses in an economical way, which creates enormous
value for the client.
In this model, “Scotiabank was the brand in the market dealing directly with the
clients.” In contrast, Kabbage was a technology “provider that operated in the
background” (Hsieh et al., 2017). The Scotiabank and Kabbage partnership model may
not work in cases where both companies want to compete to get the customers or provide
the same service; in this case, they will find themselves fighting for the clients instead of
cooperating and supporting each other.
Seeking fintech partnerships
According to Zhang, Massa, Yang, and Gao (2019), several banks had managed
end-to-end processing in-house. However, this model started to evolve in response to
regulatory pressure and a growing strategic focus on core products and services, such as
online banking. According to Hsieh et al. (2017), Scotiabank was “willing to explore new
partnership opportunities.” Fintech partnerships could help Scotiabank resolve daily
issues by offering holistic accounting, marketing, and auditing services (Hsieh et
al.,2017). Some issues were related to capital and production restrictions when trading
goods. These transactions involve multiple stakeholders, including carriers, management
entities, and insurance companies. Besides, Hsieh et al. (2017) stated that information
and processes were fragmented, transferring goods ineffective, and requires complicated
steps. As a result, fintech companies began examining the blockchain decentralized
distributed ledger system to provide all stakeholders visibility into shared information,
which significantly eliminates friction, enhances operations, and improves transparency
(Hsieh et al., 2017). Therefore, Scotiabank may seek fintech partnerships to increase
financing capabilities and integrate with other technologies such as geo-tracking to add
OVERVIEW SCOTIABANK CASE STUDY 6
value to the current offering service. Further, the partnership with fintech companies will
help Scotiabank attract more clients and minimize transaction costs by implementing
blockchain innovations.
Fintech partnership sectors
According to Tapscott and Tapscott (2018), the Blockchain Alliance is a
partnership between law enforcement, trade organizations, and the private sector.
Fintech firms used innovations such as blockchain, applied analytics, and machine
learning algorithms to improve financial services' efficiency and production (Hsieh et al.,
2017). Moreover, Hsieh et al. (2017) stated that fintech businesses are looking for
opportunities in a wide range of sectors, including crowdfunding, wealth management,
payments, and lending. Furthermore, blockchain and international payments are leading
among the sectors that can create significant value for Scotiabank. According to Arun,
Cuomo, and Gaur (2019), blockchain capabilities deliver banking innovations remap,
offering clients services to reduce time, eliminate manual processing, and removing
intermediaries in trade finance.
Furthermore, “banks struggle with standard processes and rigorous requirements
for managing, tracking, and securing national and cross-border trade transactions “ (Arun
et al., 2019). For example, corporate trade financing letters of credit based on fragmented
and multiple-stakeholders can make financing more challenging (Arun et al., 2019).
Blockchain smart contracts can store, secure, and exchange contact details and financial
terms, which help build trusted digital trade, help the bank reduce the transaction cost,
and offer the same service more efficiently (Arun et al., 2019). A fintech partnership will
work most efficiently in a geographic market where it is supported, such as the USA and
China (Hsieh et al., 2017).
OVERVIEW SCOTIABANK CASE STUDY 7
Recommendations for a three-year plan
Scotiabank should build a partnership with fintech companies. The long-term
promise of blockchain as a business network implies a trusted platform for
disintermediation that leads to market and cost efficiencies. However, there are critical
factors that should be taken into account by executives when choosing the partner. First,
Scotiabank should consider the size of the fintech company and its business
sustainability. For example, IBM blockchain can be the vital link across a vast ecosystem
of third-party administrator and service provider networks (Arun et al., 2019). Therefore,
Scotiabank should consider trust and cooperation for partnership. According to Hsieh et
al. (2017), fintech partnerships share the common goal of producing a better banking
experience. These new teams are composed of software designers, programmers, and
product designers who work together on research and development (Arun et al., 2019).
The partnership will help Scotiabank to improve the service and attract more clients.
Scotiabank should follow the technology licensing partnerships contract model when
creating the partnership. According to Hsieh et al. (2017), there could be variations in
marketing and business arrangements in the three-year plan with the technology
licensing model.
Challengers and implications "Scotiabank facing"
According to Arun et al. (2019), blockchain applications' “primary challenges are
not about having a perfect and matured technology “and selecting the proper scope that
delivers success incrementally. The scope “selection exercise reflects the management
vision and business outcome” expectation (Arun et al., 2019). Therefore, Scotiabank
management should select the proper scope for the business model, structure, and long-
term business outcome. Moreover, Arun et al. (2019) stated the right incentive plan drives
OVERVIEW SCOTIABANK CASE STUDY 8
motivation to establish the correct behavior. Incentives in blockchain involve visibility,
access, share, and exchange right.
Furthermore, Arun et al. (2019) stated good business depends on having an
efficient governance structure and trusted partner. Scotiabank requires ensuring that the
investors and clients trust the system and service, thorough compliance with the
regulations. The blockchain partnership strategy will be beneficial within the next three-
year plan.
Conclusion
Scotiabank's partnership with Kabbage provides an outcomes framework for the
partnership that would benefit the bank's approach for other fintech partnerships,
particularly in the area of blockchain and distributed ledgers. It will be more appropriate
for Scotiabank and Kabbage partnership model to enter into exclusive arrangements in
the blockchain business area. Simultaneously, many businesses might be overwhelmed
by the technological challenges of regulation, scale, and throughput—however, many of
these issues are resolved by many fintech companies in several implementations of
blockchain technologies. Scotiabank should select the right partnership according to the
needs and partnership capabilities to provide an efficient solution value Scotiabank
services.
OVERVIEW SCOTIABANK CASE STUDY 9
References
Arun, J. S., Cuomo, J., & Gaur, N. (2019). Introduction to Blockchain. In blockchain for
business (pp. 19-48). Boston, MA: Addison Wesley Professional.
Hsieh, Y., Vergne, J., & Weil, M. (2017). A Pathway for Scotiabank’s Innovation:
Leveraging FinTech Partnerships ^ W17436. HBR Store.
https://store.hbr.org/product/a-pathway-for-scotiabank-s-innovation-
leveraging-fintech-partnerships/W17436
Paulet, E., & Mavoori, H. (2019). Conventional banks and Fintechs: how digitization has
transformed both models. The Journal of Business Strategy, 41(6), 19–29.
https://doi.org/10.1108/JBS-06-2019-0131
Hung, J., & Luo, B. (2016). FinTech in Taiwan: a case study of a Bank’s strategic
planning for an investment in a FinTech company. Financial Innovation
(Heidelberg), 2(1), 1–16. https://doi.org/10.1186/s40854-016-0037-6
Zhang, H., Massa, M., Yang, A., & Gao, X. (2019). R3: Putting the "Fin" Back to
FinTech. Insead Publishing. https://publishing.insead.edu/case/r3-putting-fin-
back-Fintech
Tapscott, D., & Tapscott, A. (2018). Blockchain revolution: How the technology behind
bitcoin is changing money, business, and the world (Reprint ed., pp. 1–40).
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