Initially perceived as competitors, banks and fintechs have since learned that they’re better off as friends than foes. Banks have the infrastructure and an established customer base, while fintechs crank out technologies that target specific pain points. It’s clear that these two forces are better off teaming up, but it’s not always easy. An EY Parthenon survey found that “about 40% of bank-fintech partnerships fail to operationalize.” Let’s examine why this potential dream team doesn’t always get to the finish line and what can change…
Where Do They Meet?
No doubt, the desire is strong. According to a Deloitte report, “financial institutions are far more likely to collaborate than compete with fintechs, with some estimates suggesting that 82% of incumbent financial service providers expect to increase their fintech partnerships in the next three to five years. Here are three examples of where fintech companies and banks can gain from each other and drive major change.”
Banking institutions employ external technology solutions from fintech companies to enhance the efficiency and effectiveness of their existing processes and systems. These collaborations can involve the building and revamping of operations such as account opening or loan or mortgage origination.
While banks have a customer base and an established history with their customers, fintech companies can focus on creating frictionless and user-friendly experiences, thus significantly elevating customer satisfaction. With seamless applications and automated processes, banking looks extremely different today than it did just a few years ago.
Regulation and compliance are critical factors in the financial industry. Fintech companies can greatly benefit from banks’ expertise in this field, as banks have extensive experience in navigating the rigorous regulations associated with the financial services sector. By partnering with banks, fintechs can gain credibility, expand their presence in the industry, and even tackle some those red-tape issues themselves.
What Could Go Wrong?
With all that potential ripe for collaboration, why do so many partnerships fail to materialize? A major factor lies in the approach. Banks, being large institutional organizations, generally require more time to adapt to certain processes. Fintechs, on the other hand are known for their flexibility and agility (and as typically cloud-based SaaS companies), have the freedom to move quickly. These differences can pose challenges when it comes to aligning operations, strategies, and timelines.
To better navigate diverse working cultures, business models, and operational approaches, it is crucial to adopt a specific mindset before entering into partnerships. This mindset should embody 3 essential attitudes:
Open communication: Effective and transparent communication is vital for the success of any partnership. Establishing clear lines of communication enables both parties to share information, address concerns, and align their goals and expectations.
Patience: Recognize that different organizations may have varying timelines and processes. It is essential to be patient and understanding, allowing sufficient time for each party to adapt and integrate their respective systems and approaches.
Open-mindedness: Embrace an open-minded approach to collaboration, as it encourages the exploration of new ideas, methodologies, and perspectives. Being receptive to different viewpoints and being willing to adapt and compromise fosters a healthy and productive partnership.
5 Fintech-Bank Partnerships Doing It Right
i2c and American Express
As delivery apps grew, fintech companies created their own debit and credit cards. Visa and Mastercard supported this trend, while AMEX struggled to keep up. To catch up, AMEX partnered with i2c to increase card usage in fintech. This collaboration made AMEX perks like Amex Offers and early ticket access more popular. It improved brand reputation and attracted more customers for both parties, making it a clever marketing move.
IntraFI and Citigroup
IntraFI and Citigroup collaborated to create Yankee Sweep, a service that facilitates the transfer of excess cash from corporate and institutional clients to foreign branches of US banks. This partnership benefits clients with multiple accounts in various countries, as Citigroup’s global presence allows for seamless movement of funds. With a single Citigroup account, clients can now conveniently transfer their excess cash abroad using the Yankee Sweep service.
N26 and Wise
N26, a German bank, and Wise (formerly known as TransferWise), based in London, joined forces to offer their clients a convenient way to send money abroad. With an N26 bank account, sending money became faster, easier, and more reliable. This partnership enabled users to effortlessly send money in any of the 38 supported currencies through their mobile phones, with no complications, low fees, and complete transparency.
Bank of America and Zelle
Bank of America recognized the declining popularity of cash and aimed to enhance their digital payment services. Their objective was to provide customers with a seamless mobile experience for sending, receiving, and requesting money. This is where Zelle played a crucial role. During Q1 of 2020, Bank of America customers utilized Zelle to send a staggering $27 billion across 102 million transactions.
Tarya Fintech and Bank Leumi
Bank Leumi and Tarya Fintech joined forces in a strategic initiative to develop and adapt Leumi’s (core) mortgage system, as part of the bank’s modernization project. The system will be developed with a holistic view of customers’ needs, encompassing cutting edge risk management and a mortgage experience for the modern buyer.
The Ultimate Winner?
When it comes down to it, the ultimate goal is to improve the lives of customers—ensuring safer and smoother transactions, reduced risk, and increased flexibility. These are the things that truly win customers over. The key takeaway is that by setting aside differences and nurturing better partnerships, we can achieve increased revenue and deliver exceptional value to customers. It’s crucial to seek fintech partnerships that deeply understand these principles and are committed to driving positive change in the financial industry. Together, banks and fintechs can shape the future of finance and create a win-win situation for all parties involved.