Together is better: When banks meet fintechs
When the global economic crisis happened in 2008, there was a sustained narrative of how disruptive and innovative FinTech companies would soon render established banks obsolete. While there has been an undeniable bloom of a variety of extraordinary startups that added tremendous value to the world, the larger picture has been that the old behemoths have benefited from the FinTech era, putting an end to the doomsday prophesies. Clearly, the massive scale and resourceful networks of banking institutions have found a great partnership with the daring and enterprising FinTech companies.
Today, big tech companies are in the FinTech fray too, such as Apple, Google, and more recently, the many attempts by Facebook to launch its own currency. With such digital giants foraying into FinTech, they bring with themselves the cutting edge of computing and innovative thinking that is adding to the verve in the financial sector. Banks or FinTech startups, smaller lending institutions or big tech companies, the more effective they are able to think together in partnership, the more chances there are for sustained success and sustenance in this fast-changing sector.
Most FinTechs are startups with blue-eyed founders who lead small and tight teams of innovative and bright minds to work fast to ship the next big thing. Where FinTechs lack in scale and resources, they find effective partnerships with established banking institutions to strike up winning partnerships, thanks to the massive customer base and experience the institutions bring to the table. On the other hand, banks that are ridden with red tape, innovation paralysis and leadership inertia are bound to benefit from the fresh air brought in by the new FinTech companies. As Jennifer Lee, VP of Edison Partners say, “The rails that these payment systems are built on, date back 20 to 30 years,” laying stress on why banks have to break the rut by partnering with smaller, faster and innovative FinTech firms.
FinTechs and banks operate very differently, being different beasts of origin. As in any marriage, long term success depends on effective understanding of each other’s strengths and the willingness to support when the going goes tough.
When the differences are ironed out and a leadership team is aligned to bring out the best in both, there can be stunning results. When German banking major Commerzbank wanted to build a mobile app to simplify remote banking, it faced tough EU regulations that mandated in-person verification for KYC (know-your-customer). The solution came from a partnership with a FinTech company IDnow, that provided fast verification of identity cards through video feed, confirming with the provisions of the law. The successful partnership resulted in a 50 percent increase in customers who instantly switched to being digital app users for the bank, increasing trackability and convenience.
Back in India, payments major VISA partnered with homegrown neobanking platform called OPEN, that provides lending solutions for SMEs and startups with innovative credit card solutions. The co-creation helped VISA empower small businesses by enabling safe, reliable, and convenient payment experiences. The new credit card, named ‘Founder’s Card’, tailored especially for SMEs and startups with an exclusive rewards program, and integrated expense and subscription management.
The secret sauce, therefore, is the acceptance that together is better. A mutually beneficial partnership between banking institutions and FinTech startups is here to stay, and when done right, will continue to bring in waves of good for the entire world.