Better together: banks and fintechs join forces

In recent years, as the nascent growth of financial technology has started to bloom, there has been marked industry opposition between fintechs and banks. The emergence of fresh, lean start-ups using technology to speed up financial processes and cut costs has had a disruptive effect on the traditional banking system, and has threatened the robust position banks have held in the global financial services market.

According to PwC’s 2016 Global FinTech Survey, 76% of banks perceived part of their business to be at risk to fintech, with concern that startups will go directly to the end-user and bypass banks altogether. This rising threat has actioned banks into a “if you can’t beat them, join them” attitude, and banks are now the most active of all financial sectors in partnering with fintechs, with 42% of banking respondents now joining forces with fintechs.

After a few years of wrangling for dominance, banks and fintechs are slowly coming to the realisation that by working together, they can provide more consolidated services, more efficient processing and have a far higher chance of dominating the marketplace. Rather than limiting the scope of financial services, banks and fintechs are carving away the dualistic rivalry that has stereotyped the industry, and are joining forces to focus on opportunities that leverage each other’s strengths.

It’s a binary partnership: without the technology, banks will lag behind as fintechs provide slicker, more user-friendly interfaces, yet without banks, fintechs will be stymied as they require the back-end processing required to move money around. While fintechs offer product simplicity and seamless integration, they lack sufficient data security, compliance and regulatory certainty that banks possess. Banks also benefit from vast existing customer bases and have the legacy systems which are proven to work. Fintechs are riskier, because they aren’t necessarily proven methods and they lack the financial integrity that characterises banks – yet they have the innovation, the flexibility and the problem-solving approach to address the key issues experienced by the end-users, providing a solution which appeals to the mass market.

The industry is seeing a shift where both sides are coming to the realisation of a new, mutually beneficial relationship, and ultimately, it’s the end-user who will benefit from this.

We work in partnership with Citi to provide global business payments and there are many highlights of how the strengthening relationship between banks and fintechs is a trend which will only continue to grow.

In the recent past, there has been conflict and competition between banks and fintechs, but now we are coming to the realisation that together we are stronger.

Really, this is primarily for the benefit of the recipient. Banks possess the global power and knowledge of the back-end processing, while fintechs are building the software at the front, building with the user interface, and providing solutions which effectively and coherently manage payments processing and failed payments, etc.

Fintechs deal with the rules and routing at the point of entry, ultimately providing more transparency and control of the front-end to the payment remitter. This is exactly what businesses want because they have lacked control and transparency in the past. In turn, this then benefits the beneficiary because less things go wrong – payments are faster and more accurate as errors or issues are flagged up and corrected earlier in the payment process.

Technology definitely helps to improve straight-through processing and enhances the customer experience, and banks are waking up to the fact that if they can’t innovate on their own, they are better to outsource the innovation. Banks have waylaid legacy systems and by working with fintechs, it makes for smoother processing and easier, slicker payments. It reduces the risk of charges by utilising more efficient resources.

While cost-efficiency and speed are at the forefront of new banking technologies, the emphasis on this, coupled with accuracy, is even more pronounced when operating across a global marketplace.

International payments involve even more complex and complicated procedures, including all manner of compliance and mandatory checks, in-country regulations and currency exchange issues which can slow up the payments process and allow much more capacity for errors to be made.

Technology is an enabler here, because it can help legacy banks by offering functionalities and automated processes which make the whole international payments process much smoother. Even something as simple as changing the currency earlier in the process, capturing the right information and delivering it correctly, will ensure the payment process is more streamlined and efficient.