5 ways fintechs and banks could collaborate rather than compete
Banks are forced to operate in a strict regulatory environment taking into consideration risks of innovation for their legacy infrastructure and at the same time, customers’ needs for more personalized and smoother banking experience. Fintech companies, on the contrary, have capacities to ensure clients’ loyalty but are hampered by regulatory compliance issues. These controversies can be resolved to allow truly commandeering the banking world by those who realize that fintechs and banks can take advantage of each other rather than compete. Let’s see real world examples of how banking leaders and fintech companies are complementary to each other instead of being antagonistic.
The first way how banks may help fintechs and get some advantages for themselves is to navigate through regulatory issues. Affirm, U.S.-based financial technology company, and Cross River Bank are partnering in the implementation of a buy now pay later (BNPL) technology. What could be so challenging for them is the development of a BNPL solution for Cross River and regulatory compliance to enable the financial side of lending for Affirm. The way out is Affirm being a customer of Cross River Bank, which results in the latter’s ability to manage their own product while Affirm being held accountable for financial and regulatory risks. All in all, Cross River provided more than $2.4 billion in loans for companies like Affirm in 2015 alone and continues to build out more strategic partnerships.
“The agility and scalability of our [API-based] core is what makes us great. As companies grow, they pivot to us because they know we are the go-to for embedded finance and infrastructure”, adds Gilles Gade, Cross River Bank’s CEO.
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Another pattern of alliance between fintechs and banks is focused around direct access to technology. Deutsche Bank partners with Traxpay, a fintech company, to integrate supply chain solutions into its own offerings. The latter provided the German leading bank with a platform for dynamic discounting and reverse factoring, which the contractual partners can use to flexibly control their liquidity.
“With Traxpay, we have found an experienced and good partner with whom we will offer further solutions for our customers in this field. Our answer to the question “fintech or bank” is “fintech and bank”, says Daniel Schmand, Deutsche Bank representative.
Banks also traditionally engage fintech companies through outsourcing development of some financial services. ABN AMRO, one of the leading banks in the Netherlands, was willing to improve the way its customers manage their recurring payments. In collaboration with a Danish fintech startup, the bank launched the Grip App that provides its customers with an online platform to control what they spend by categorizing incoming- and outgoing payments.
Next, teaming up between banks and fintech in the field of API access brings scaling up their respective offerings. This is the story of an app developed by Elinext: an app developed for integration with financial services vendors allows consumers to apply for loans from multiple sources through connection with the loan providers’ APIs. As a result, around 3,000 applications across 16 financial organizations may be processed daily.
Finally, partnerships of banks and fintech providers expand the client base for each stakeholder. Both parties introduce themselves to new customers and market segments ensuring growth and revenue generation.
As the above case studies show, fintechs and banks have enough capacities to collaborate in a number of ways rather than compete. The former has the ability to innovate and develop tailored technologies while the latter can take advantage of established infrastructure and credibility with regulators. If each partner does what they do best, their cooperation predicates success in the banking sphere, which is one of the most regulated and scrutinized industries.
