Banking and finance industry has been undergoing a significant transformation in recent years, with new technology innovations and fintech solutions bursting onto the scene. Against this backdrop of rapid technological disruption, banks and fintech businesses need to work together by using their complementary strengths. Given the vast differences in regulations and legacy systems, banks have a reputation for resisting technological collaboration with outsiders. Recently, however, banks have realized the benefits of partnering with fintech companies
as it would help them gain competitive edge and meet evolving consumer demands.
Financial technology often abbreviated as FinTech is a dynamic segment where finance and technology merges to disrupt traditional financial sector, business models and banking structures. It is a movement that brings transformative innovations to financial services through the application of emerging technologies such as blockchain
, artificial intelligence, big data and more. Gaining significant momentum in the recent years, this disruptive technology has opened up many doors of opportunities that enable convenience, personalization, and flexibility. FinTech sector raised $36.6 billion
of venture capital investments across 2,304 deals globally in 2018.
Building a successful partnership between banks and fintechs
have its own set of benefits. While banks can leverage emerging technology trends to create stronger profitable propositions for its customers, Fintechs can avail access to a pool of potential customers for nurturing their own growth ambitions. There are some key factors that drives banking sector to evolve towards seamless digital experience. Some of the major trends include:
- Evolving customer needs: Modern day customers expect an unparalleled level of customer experience and this has presented a new challenge for traditional banks. Customers prefer handling their finances online as it ensures convenience and time savings.
- Technology advancements: Rapid advancements in technology have provided a great boost to the digital capabilities. Informative visual interface, automated processes and high security architecture of the self-service banking tools have enhanced the overall operational efficiency of banking operations.
- Exponential growth in the number of mobile users: Evolution of mobile devices, have become a key focus for the banking sector as it renders better ways for customer engagement and financial operations. Banking-app based smartphones have emerged as an effective alternative to the troublesome and expensive branch transactions.
Banks, insurance companies, payment providers and other financial service providers have embraced the financial disruption and shifted their focus to provide customer-centric services. Rise of online banking, mobile payments and person-to-person payments (P2P) apps have contributed to the tremendous adoption of fintech solutions. Partnering with Fintech companies
help banks reap a wide array of benefits such as:
- Greater flexibility: Customer expectations and payment processing technology are advancing swiftly and traditional finance sector fails to keep up with the speed and agility. As most of the FinTech businesses are smaller and younger, they follow lean and agile structure. Banking- Fintech partnerships ensure increased operational efficiency, scalability and flexibility.
- Enhanced trust and transparency: Trust and transparency are crucial factors for building a mutually beneficial relationship. The millennial generation has a strong inclination toward brands that offer personalized service, best value, transparent approach, and ultimately, can guide them attain their financial goals. With the emergence of FinTech startups, a new wave of financial transparency has hit the industry. In addition to the convenience and mutual trust factor, consumers are provided with an opportunity to compare different financial services in real time.
- Effective Risk Evaluation: Risk is always a core component of financial system today, Cyberattacks and security threats that spread losses across firms and markets have become more frequent and sophisticated. Diversified and decentralized architecture of FinTech services can help in mitigating the risks. Blockchain technology, Big data processing, Artificial Intelligence powered chatbots and similar technologies makes it easier to cut down the risk of errors and frauds.
- Improved customer experience: Banks and financial service providers need to offer customer-centric services to compete and thrive. And many Fintech businesses have brought new approaches to customer service by promoting convenience, accessibility, personalized user experience and innovation.
A successful and sustainable bank-fintech partnership demands a strategic plan. Each partnering side must be evaluated thoroughly to gain a sound understanding of each partner’s organizational structure, policies, procedures, culture and norms. Below listed are a few ways to foster sustainable banking-fintech partnerships.
- Define value proposition
Whatever may be your partnership strategy, creating an effective value proposition is crucial for establishing a healthy collaboration. Both the partners, banks and fintechs, need to be clear about the value proposition and how it should have an impact on them. It is also important to focus on developing a good working relationship by exploring the potential challenges of working together, analysing the differences, reviewing the protocols and establishing basic techniques for daily operations. Banking and finance organizations need to invest their time and effort in defining the relationship they want by leveraging their complementary strengths and assets.
- Establish a common ground
The opportunity for fintech enterprise and banks to work together is endless. However, the overall goal should be acceptable with both sides. Banks and fintech companies need to find a common ground so that they can reap the benefits. If banks wish to grow and gain an edge, then they have to discuss and explore the innovative technological solutions offered by fintech companies. Furthermore, fintechs and banks need to educate each other on the security and regulatory compliance issues to reduce residual risks to an acceptable level.
- Remain flexible
Come up with a strategic plan that can scale and adapt. Rather than following a formulaic approach, it is recommended to create a scalable and flexible partnership plan that quickly adapts to industry dynamics, technology trends , internal changes and consumer needs. Make sure to review and modify the strategy for delivering the most relevant solutions and experiences to customers.
Innovation, collaboration and transformation are the key ingredients of a successful bank-fintech partnership. Hence, make sure to establish mutually acceptable partnership strategies by testing and scaling different approaches.