Should Banks Collaborate (Not Compete) With FinTech Startups?

When digitally native financial services and next generation FinTech first emerged as legitimate contenders to incumbent banks, battle lines were understandably drawn. You couldn’t attend a banking conference for several years without hearing the expression “FinTech’s intention is to eat your lunch” seemingly on repeat.

Fast forward to 2018, and the atmosphere has undoubtedly changed somewhat. Whilst neither party is completely at ease with the other’s position, there is much more of an understanding that a healthy relationship between established financial giants and more nimble, creative, digital natives can be beneficial to both parties.

High street banks can rely on a certain amount of customer loyalty, although most studies indicate that Millennials are less loyal customers across the board than previous generations. Where they do certainly have the edge over disruptors is trust and volume of clients.

Incumbents also hold a huge volume of data on those clients, which if analysed correctly, could unlock many of the questions to better customer engagement, and in theory have more resources at their disposal than disruptors to act on that data.

But in the era of customers deserting brand loyalty in favour of better UX, can traditional banks innovate quickly enough to compete on that battlefield with their new rivals? The short answer is… No.

At a time when traditional banking institutions are just beginning to embrace the potential of collaboration with FinTech firms, organizations like Google, Amazon, Facebook, Apple (GAFA) may disrupt the entire banking ecosystem once again.

The banking ecosystem is in a state of transformation. New FinTech entrants are coming into the marketplace regularly, while traditional providers are trying to adjust to the realities of digitalization, advanced technology and increasing consumer demands. Moving from a competitive perspective, traditional financial institutions and FinTech firms now understand that collaboration may be the best path to long-term growth.

Understanding the opportunity and being able to take action on this opportunity are not the same thing, however. Between differing cultures, vastly different infrastructures and an ever changing compliance playing field, collaboration between banking and FinTech is far from simple, derailing many proposed partnerships.

According to the World FinTech Report 2018 from Capgemini and LinkedIn, in collaboration with Efma, successful collaboration will heavily rely on traditional institutions’ ability to identify and assess whether candidates for partnership have the characteristics necessary for sustained success across four pillars:

  • People
  • Finance
  • Business
  • Technology

The success of Bank+FinТech collaboration rests with those organizations who can understand each other’s strength and weaknesses to improve the customer experience while also reducing operational costs. Potentially more important will be whether these collaborations can deliver the level of personalization, speed, contextuality, and seamless delivery to defend positions against the threat of the more pronounced competition that could come from the likes of Google, Amazon, Facebook and Apple (GAFA) or challenges from Alibaba and Tencent.

The good news is that infrastructure-based technology, enabled through the potential of open Application Programming Interfaces (APIs), is transforming the financial services industry. Combined with the ability to process and analyze increasing amounts of consumer data with machine learning, and the automation benefits of robotic process automation (RPA), chatbots, and Distributed Ledger Technology (DLT), there is greater potential for agility, efficiency, and accuracy.

Reasons to collaborate?

Growing FinTech innovation

Due to a plethora of data, FinTech startups have gained significant traction. By introducing innovative ways, they are successfully offering products and distinctive solutions for consumer demand.

In the third quarter of 2017, global VC-backed FinTech startups raised as much as $4 billion across 278 deals. In 2012, for the same quarter, FinTech startups had attracted only $759 million across 105 deals. Their growing popularity is a big reason why banks need to enter sooner for a timely adoption of technology.

Increasing awareness in customers

Collaborations will provide the perfect opportunity to leverage the full potential of the technology and will allow them to meet the demand of digitally savvy users.

EY FinTech Adoption Index 2017 released in June 2017 indicates that the appetite of digitally active consumers has risen considerably, from just one in seven digitally active consumers in 2015 to one in three in 2017. The report also shows that in 2017, there are 84% consumers aware of the FinTech facilities in comparison to just 62% in 2015. The same reports show that the FinTech adoption rate is expected to reach an average of 52% globally from the current rate of 33% in 2017.

The maximum usage of FinTech is happening along the lines of payments and money transfers, with 50% of consumers choosing such services in 2017, in comparison to just 18% in 2015. Such growth in numbers could soon blur the boundaries between different financial services, laying down new standards for the industry during the process. To stay ahead of the curve, financial firms would benefit from the technical assistance from the FinTech startups.

Win-win situation

According to this Deloitte report, while envisioning the future of the Banking system, the following factors are a win-win relationship between Banks and FinTechs:

  • Culture: FinTechs are more likely to experiment with their products and service offering till they to a suitable shape fitted to market. However, as banks have to comply with some rules and regulations, they often avoid conducting too many experiments.
  • Trust: Trust in the banking industry is built through responsible management and regulatory experiences over the time, for which banks must be highly careful about partnering with a FinTech.
  • Scalability: Partnership with banks brings efficiency, as it reduces costs by exploiting the existing networks of the banks. However, in such partnerships, both the Bank and FinTech must ensure that this partnership is not restricting any innovation and creative activity of the partner or of the partnership itself.
  • Buy vs Build: Looking at the global financial industry, it is quite visible that, banks not only buy FinTechs but also opens newer in-house FinTech solutions to provide better services to the clients.
  • Product Life Cycle: Bank – FinTech partnership can have a huge impact on the market. However, both parties should be concerned about the existing products as well as the non-tech-savvy customers.

Bank and Fintechs: A Match Made In Heaven

For years, banks have viewed FinTechs as “competition,” yet the benefits banks gain from partnering with FinTechs have proven to be beneficial.

Traditional banks need to innovate faster, focus on solving specific industry problems and use machine learning to make more accurate decisions, all of which is being accomplished through forming partnerships with FinTechs.

In turn, FinTechs rely on banks for capital, scale, data and regulatory support. When looking at the entire picture, banks and FinTechs are a true match made in heaven and collaboration between the two will continue to advance.

So, what do you think? How can banks compete with FinTech startups, and more importantly  should they? Or should they collaborate?

Leave your comments below : )


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  4. THE FINANCIAL BRAND. (2018). Banking + Fintech Collaboration: More Important Than Ever. Retrieved from