This article was written by John Donovan, the CEO of Bizfi.
When fintech companies emerged a decade ago, many companies came out with their boxing gloves on, ready to fight their way through the established financial services industry order. Traditional banks put their gloves on too, thinking they’d need to defend their turf from the upstarts. Now, increasingly, the gloves are being put away because smart banks and fintech companies have discovered that they can benefit from each other.
To be sure, you’ll still see surveys with one side saying the other is a threat. Beyond the checkboxes, however, you can find a growing number of companies that have realized that there are, between fintech companies and banks, the makings of great partnerships. For those on both sides who still need convincing, I offer these points of consideration:
Rather than view the new technology offered by today’s fintech startups as a total disruption of the banking industry, it might be useful to see it as a way to fine-tune the successes that banks already have. Banks still own the bulk of customer relationships, both personal and business.
What they don’t often own, however, is the best technology for the best customer service. It’s not that they haven’t wanted to have it—spending on compliance technology had to come first—but by partnering with fintech companies they can get the lending technology they need for their most important business segments quickly and easily.
They can serve small businesses in a much more cost-effective way. Fintech startups can also help banks to better mine customer data and, in doing so, perhaps expand their boundaries way beyond the area of payment and consumer credit.
Big banks, like every big company, have internal departments charged with developing new technology and new products. That’s good, but internal units can get caught up in internal red tape and politics. Banks needed a skunkworks, but until fintech startups came along, they really didn’t have one.
Lean, independent fintech companies have the potential to deliver faster solutions at a lower cost. Smart banks have already begun to bolt on fintech technology or use white-label platforms to smooth their small business lending.
For those fintech startups oriented towards the partnership route, some banks are building accelerator and incubator programs. These initiatives not only keep the startup on its toes in terms of being able to adapt to changes in the business, but allow the bank partner to provide its own insights and mentorship from its years of experience in the industry.
There are accelerators started by individual banks, as well as consortia financed by FIS and Fiserv, and Startupbootcamp FinTech NY, which chose ten companies from 400 applications to receive funding, mentorship and office space. If this fintech accelerator goes the way of Startupbootcamp’s other global initiatives, we’re going to see unique bits of technology emerge that can make a real difference in bank operations.
Not convinced yet? Just step aside and watch. The trend of bank-fintech partnerships isn’t going away any time soon.