Innovative FinTech companies and established banks are on the brink of a collaborative drive towards providing modern solutions for personal finance, business funding, and meeting the needs of an ever-expanding number of people who are seeking alternative ways of accessing their money.
Although traditional banks may once have eyed FinTechs with concern, for banks, uniting with FinTechs allows them to innovate and evolve; and tech companies are benefited through the opportunity to expand into new markets, and in being granted the regulatory status of traditional banks. FinTechs are no longer necessarily seen as intruders in the space, but instead are increasingly considered valuable partners when such traditional banks are looking to innovate, increase engagement with their clients, or reach new targets.
Continued partnerships and collaboration between banks and FinTechs is essential for the future of the financial services industry. With this in mind, let’s take a look at the ways in which banks can begin working better with FinTechs.
Why Collaboration Is Essential
A 2020 survey found that just 14% of consumers turned to their bank for financial advice following a life event that significantly affected their finances. One reason why consumers are often hesitant to seek advice from traditional financial services is that they have little faith in such institutions. By contrast, people have much more trust for FinTech companies; with a 2019 Pew Research reporting that 50% of people surveyed believe tech companies have a positive impact.
When banks and FinTechs partner, they can harness recent changes in banking behaviour and use technology to profit from the higher levels of trust people have in technology, to provide a service which successfully engages its consumers. This affirmed evolution in the way people view and manage banking and financial services emphasises just how essential it is that banks begin working harmoniously with FinTechs.
4 Ways Banks Can Work Better With FinTechs
Neha Jha, Group Product Manager at Mambu, an SaaS cloud banking platform that uses ClearBank as an agency partner, believes
“Transparency is extremely important. In a highly regulated environment, there has to be an audit trail and all checks and balances need to be in places – and the agency banking platform should be built with this in mind.”
For greater collaboration with FinTechs, banks need to provide clear reporting of fraud checking, automated dashboards, and accessible transaction data in order to give FinTechs peace of mind as quickly as possible.
Develop A FinTech Framework That Rewards Innovation:
An innovation adoption framework is needed to support the innovation of FinTechs, with clear accountabilities, decision making frameworks, and criteria’s for success all being considered. New ideas should be supported and proposals for innovation welcomed; hackathons can be a great way of encouraging staff to develop and articulate their innovative ideas.
Banks should define their innovation framework process early and clearly, and share their relevant aspects with the firms they’re seeking to engage with. The process must be driven from the top, encouraging innovation and building lessons learned into the framework.
Improve Collaboration With FinTech Start-ups:
Taking equity stakes in FinTech start-ups should be more of a collaborative exercise for banks and less about potentially acquiring and hoarding the start-up at a later date. One of the core value-adds banks provide is they have a plethora of clients that are potential customers of such start-ups. Bank investors should open up these extensive client lists to FinTech start-ups to allow the start-up to validate itself and for the bank to offer a value differentiator to clients. Such collaboration also demonstrates internally what industry innovation truly looks like.
Greater ‘Banking As A Service’ Solutions:
While FinTechs want greater innovation in technology systems, only 48% of FinTechs believe that they have ‘banking as a service’ from their partner. For Jen Anderson, CTO at credit union FinTech Incuto, the answer lies in emulating the faster pace of their smaller partners:
“Moving away from large cumbersome IT programmes, which are more likely to fail, to a higher number of high-performing small teams with a clear mission of what they need to deliver, end-to-end, and who take responsibility for the business outcome – this will go some way towards greater agility.”
Many large banks are starting to bring people with an agile approach into their business, which is great for promoting cultural change. But if the underlying infrastructure remains the same, they won’t be able to adapt, change or develop. Banks must ensure their infrastructure is moving quickly enough to allow such cultural change to happen across the organization.
The Future of Banking and FinTech Partnerships
With just 7% of banks taking any action in setting up their own FinTech labs, the financial services industry has a long way to go to keep the pace with emerging innovative FinTechs.
The continued disruptive force of the FinTech space is set to have a remarkable impact on the organizational function of established financial institutions. As FinTechs continue to drive innovation in the industry, banks will undergo an ‘unbundling movement’, in which they’ll grow their structure horizontally to enhance their products and services. But ultimately, banks need to get better at proactively working with FinTech firms. Otherwise, neither will reap the ample benefits that come from true financial innovation.
If you’re looking to hire expert FinTech talent for your FinTech organization, get in touch. Our team of specialist consultants can connect you with top FinTech professionals who will bring growth and innovation to your company.