One way in which the banks have tried to catch up with the digital age is by partnering with fintechs. Basically, it saves them the problem of finding new staff and creating a specially developed department, and it makes sense.
There has been a noticeable growth in bank-fintech partnerships since 2018, and it appears to be happening in three different ways.
First, banks are making direct investments in fintech startups. Second, the banks are integrating new startups’ technology into their own applications by using a ‘white label’ agreement. Third, at least one in three banks plans to buy a fintech in the next year.
Mergers and Acquisitions
It would appear that banks and fintechs are moving away from seeing each other as competitors, and instead acknowledging that they need each other. We are seeing banks being more proactive in their approach to collaborating with fintech firms, and there have been hundreds of bank-fintech partnerships taking
place via strategic investments, innovation programmes, incubators and accelerators,
as well as M&A activities.
We are also seeing that banks want to leverage more fintech know-how and their front-end capabilities. Meanwhile fintechs want to leverage the banks’ vast customer bases, their infrastructure, and their stronghold on the financial regulatory systems.
The thing that is helping this the most are APIs. The banks want to revamp their core banking systems by enabling plug-and-play services offered by fintechs. So, we are seeing a lot of open platforms being built in different fintech sectors. As Medici’s Global Deep Dive report says, “This is seen as a natural step forward to embrace
the growing need for co-development, reusability, and agile/rapid application
Banks also have lots of customer data, which is very valuable in an era ruled by Big Data and AI. Fintechs want to tap into this data and discover the actionable insights that will help their growth. There are some questions about who owns the data though.
Medici gives the example of Apple, which has managed to gather a lot of support from UK banks. This is because it has agreed not to hold onto to customer data. Although, with stronger data protection regulations such as GDPR in place, it will beinteresting to see how this situation pans out in the coming years.
The fintech sector started with the idea of disintermediating the incumbent banks’ service lines and adding a tech-driven customer experience to deliver innovative offerings. But it seems that the story has moved from ‘breaking the banks’ to ‘working with the banks’. As a result, the coming together of banks and fintechs has given a new direction to the strategic expansion of the financial services ecosystem, and in the coming years, we can expect the same trend to continue and take a more concrete shape. That seems to be the industry consensus.