“In the new world, it is not the big fish which eats the small fish, it is the fast fish which eats the slow fish.” – Klaus Schwab, founder and executive chairman of the World Economic Forum
A common theme of late has been to paint fintech’s as the
harbingers of death for the banking industry, disrupting their businesses and cutting into their margins with catastrophic consequences. They are often painted as “challengers” or “disrupters”. While it is safe to say that fintechs have certainly taken
revenue away from banks, particularly in my industry (payments), there is another way of looking at the rapidly changing landscape of finance and technology. Many, myself included, have advocated for banks to partner with fintechs to provide their customers
with an improved user experience, become more agile, and update services. This is certainly true, but why aren’t more people talking about the other side of this increasingly symbiotic relationship?
Truth be told, most fintechs need strong partnerships with banks to be able to effectively deliver their services, particularly in international payments. Without worldwide banking relationships established, my company, AscendantFX, would not be able to
boast its low transaction fees, fast payment delivery, or extensive network of supported currencies. Our Virtual Accounts product would not exist without our strong partnership with our bank, and I’m certain future innovations would stall without banking partners,
as well. Certainly, banks need fintechs – but we need them too.
But why would banks want to partner with fintechs, anyway? Aren’t big banks future-proof simply by virtue of their size and scope?
In 2016, seed accelerator 500 Startups and INSEAD Business School released a report entitled
“How do the World’s Biggest Companies Deal with the Startup Revolution” in which authors Arnaud Bonzom and Serguei Netessine indentify, among other things, some of the key reasons why large corporations can find value in working closely with startups, and
Startups generally have a faster speed of operation, as agility is one of the keys to staying alive as a startup. Not only do they drive innovation, but also generally project an
image of innovation, which attracts a different type of employee and customer. The culture at a startup is also very different than a traditional corporation: risk is good, and performance is measured in ways beyond traditional KPIs. Therefore, partnering
with a startup can help improve brand perception, both from the outside and from within the company.
Conversely, partnering with fintechs that offer services that are not core to profitability allow the banks to expand their offerings and “be all” for their customers. It also allows the bank to focus and innovate on the departments that are most important.
The reality is that the payment landscape is changing faster than ever and it will continue to increase in speed; fintechs can help banks keep up.
Large banks do, however, have a lot of flexibility in other areas where startups can struggle. Funding, for instance, is much easier to come by, as are branding and PR opportunities through their longstanding, leveraged relationships with various channels
not accessible to smaller startups. For the finance industry, perhaps the most important strength a big bank can bring to the table is
credibility, which is integral to success when dealing with people’s money. Credibility can translate to trust (if you’re able to deliver on your promises) and fintechs are more likely to be able to do so with strong banking partnerships.
Partnership allows banks to keep revenue for clients that may be looking for new technology, increased customer service, etc. For fintechs, the benefits can be found in credibility and scalability. Together, banks and fintechs have the power to bring innovative
new finance solutions to the market more quickly and effectively than they could on their own.