Since fintechs emerged on the financial scene there has been a lot of talk about how the banks would quickly become irrelevant. Before fintechs arrived, the banks developed their own technology and solutions that supported their unique needs, they are now taking a new approach.
Bill Zayas, President and CEO of Dade Systems told PYMNTS that there are new trends in 2019. First, third-party providers have started to create solid software apps that are meeting different needs. The banks are then licensing a fintech’s code and taking it apart to fit their own requirements. The advantage for the banks is that someone else does all the development work. However, the banks still have to configure, install and support these customised applications.
There is a problem with this, Zayas explained: “They couldn’t turn to the vendor because they had modified it so extensively.” As a result the banks stayed a step behind the fintechs, simply because they had hashed the code up so much that the fintech developers couldn’t help them.
This has changed quite radically in 2019, Zayas says. There is much more collaboration between the banks and fintechs, because the fintechs are not held back by a legacy environment in the same way as the banks are. The fintechs can tap into “new tech stacks and develop new solutions that fit the marketplace and take advantage of the latest technology,” Zayas remarks. He also said that the bigger banks were not running solutions in the public cloud, for instance, because they had a closed-loop environment; fintechs, by contrast, can take a much more ‘new tech’ approach from the start.
It is worth noting that fintech collaborations can also serve as a defensive strategy for the bank. For example, if a fintech has direct access to a bank’s customers, those customers may prefer to go with the service offered by the fintech. The bank would effectively b cut out of the loop. But by collaborating with the fintech, the bank can retain control by bringing the solution to the customer under its banner, and because of the bank’s resources, it can bring the solution to market faster.
Fintechs are increasingly offering white label solutions to the banks. This works behind the scenes and serves as the engine powering the solution in a less costly environment. It’s a ‘compromise’ way forward for the fintechs and the banks that ensures the survival of both.