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Uneasy Alliance: Banks and FinTech Start-ups


Keep your friends close, and your enemies closer.”  Sun Tzu, Chinese general and military strategist, uttered these famous words around 400 B.C.  Today, this quote could be used to describe perspectives on the relationships between banks and FinTech start-ups.  This post explores this uneasy alliance, its framing, and proposes a more pragmatic approach.


Is it really Banks versus FinTechs?

“The Economist” wrote a recent special report detailing how incumbent banks continue to dominate day-to-day banking, but asks “for how long?” as FinTech start-ups make inroads.  It describes how many banks are working to try to partner more effectively with FinTech start-ups, while most start-ups “do not feel half as warmly towards their incumbent rivals.”  This acrimony is described as:

One [start-up] dismisses them [banks] as ‘the Kodaks of the 21st century,’ another as ‘financial vacuum-tube makers in the age of the transistor.’  They see banks as tomorrow’s telephone copper wires, vestiges of an earlier age, and believe that, in essence, banks cannot adapt. ‘How often have you seen an incumbent really reinvent themselves?’ a startup founder asks.  The best thing anyone can say about banks is that they will always be around.”

Banks are aware of this FinTech start-up perspective and try to deal with it through their incubators and other alliance initiatives.  “The Economist” acknowledges:

“They [banks] are keeping a close eye on how their products compare with those of the [FinTech] newcomers, and many of them understand their limitations when it comes to innovating. ‘If you want to come up with a new product in a bank, any one of 50 people internally can shoot it down. If you’re a startup, you can go visit 50 venture capitalists and you only need one of them to give it a green light,’ says Tonny Thierry Andersen, head of retail at Danske Bank.” 

This New York Times piece describes the uneasy alliance between Wall Street banks and Silicon Valley Tech firms.   It describes how the banks courtship of technology start-ups is getting more complicated because some of Silicon Valley’s most promising upstarts—if they had their way—would eat away some of Wall Street’s core business.

Banks are taking different strategies in order to try to deal effectively with this issue:

“The New York Stock Exchange and Vikram S. Pandit, the former Citigroup chief executive, recently invested in Coinbase, a Bitcoin company.  James D. Robinson III, the former chief executive of American Express, is on the board of OnDeck Capital, a small-business lender that could one day make the established players obsolete.  Even as the East and West Coast hubs of business power seem to coexist in a newfound friendship, how long it will last is an open question.”


Can it be Banks and FinTechs?

We believe a different mentality is needed from FinTech start-ups—in order for their innovations to reach the largest possible market segment at scale.  As Quisk has written before, we call this FinTech 2.0.  It is not banks versus FinTechs; rather it should be banks and FinTechs.

We believe pragmatic FinTech innovators will be bank-focused in their go-to-market strategies to leverage the consumer trust which banks have worked for decades to earn.  And banks will continue to be start-up-focused in looking for their most significant innovations.  “Trash talking” from either side is not productive.

In closing, Sun Tzu’s quote can be understood at different, deeper levels.  Your “enemies” can be considered hurdles which you need to overcome in order to build your character more fully and make you—or your organization—better.  Banks and FinTechs should view each other in this light.  By staying “closer,” both can make each other better… with the ultimate winner being the consumer.  This would be a great thing, indeed.  Let us know what you think.




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