Bank Fintech Collaboration

In 2016, financial technology companies raised a combined $28.4 billion – over five times the amount they had raised during 2010. Such an increase indicates that fintech is becoming a major disruptor in the financial industry. Should the industry be focused more on bank fintech collaboration?

While it is true that fintech is changing the financial industry from top to bottom, banks have no need to be apprehensive about these changes. Rather, fintech can help banks increase their overall revenue – but only if banks are willing to accept fintech companies as collaborators, not competitors.

Think about credit cards, internet banking, and contactless payment technology. None of these technologies existed 75 years ago and all of them were made possible through collaborations between banks and fintech companies. Each of these technologies has made transactions easier for consumers and businesses alike, and thus, these technologies have increased the total number of transactions made. Banks that had the foresight to integrate these technologies into their systems have reaped major rewards.

The fintech companies that are disrupting the financial industry today are doing so by offering faster, more secure, and typically digital-only banking transactions. Shtar.com, for example, makes payments easier and safer by interfacing commerce and accounting applications with bank payment platforms.

In order to respond to fintech companies’ developments, large banks may instinctively ask their in-house teams to mimic fintech technology. But when banks insist on managing their technological offerings on their own, they undervalue the unique benefits that fintech companies can offer them.

Fintech companies use their lack of legacy infrastructure to their advantage. While major banks have large existing fixed costs, fintech companies are usually digital-first and consumer-centric. Fintech companies therefore usually have much lower cost-structures. They can take risks and innovate for much less money than it costs banks to do the same.

Banks may update their systems monthly or even less regularly, but fintech companies can offer automatic updates. Because of their lack of legacy infrastructure, fintech companies’ updates and product launches can occur much faster than banks’.

Additionally, given their digital nature, fintech companies are able to use predictive modeling and analytical tools better than traditional banks can. With predictions of consumer behavior, fintech companies can then draw conclusions that are tailored to meet the needs of each individual consumer. Personalization is a major draw for consumers, and so technology that enables banks to offer more personalized services should not be undervalued.

Finally, fintech companies have created several new business structures that can be major boons to the financial industry. Peer-to-peer (P2P) digital transactions have been popularized by fintech companies. Likewise, fintech has popularized crowdsourcing and social network scoring. It is in banks’ best interest to invest in these new business structures.  

In order to be successful, fintech companies need banks’ name recognition and their customers’ trust. While fintech companies can innovate much more than banks can, their technological advancements are worthless if they cannot find banks and consumers to back them. Fintech companies cannot afford to compete with major banks.

But when fintech companies partner with banks, all of fintech’s innovations can be scaled up to benefit the bank. Banks need fintech companies’ innovations and cost and time efficiencies in order to stay competitive. And so when banks and fintech companies collaborate, everyone wins.