Deutsche Bank has become the latest financial services giant to call on its industry to hug the hoard of upstart fintech rivals close, concluding that co-operation, not competition, is the wisest approach in the business-to-business payments arena.
In a new whitepaper (PDF), the German bank acknowledges that over the last decade a host of non-bank players, from PayPal to Stripe to Apple Pay to Bitcoin, have upended the payments market, turning models on their head.
Deutsche Bank splits the new bank rivals into two groups: the fintech startups, and the "digital ecosystems" - tech giants such as Amazon getting into the payments business to improve customer experiences within their own marketplaces. Both have made the B2C space tougher for banks, says the paper, which urges the industry to act faster to protect its interests in the greenfields of the B2B arena.
This can only happen through co-operation, with banks ceding some areas of their businesses, choosing to partner fintech firms on products and services when this delivers better value to customers. Equal partnership also helps banks by creating freedom to work outside of their normal corporate structures, providing the space to experiment and innovate.
The paper also stresses that coperation has huge advantages for fintech firms, which may be able to make an initial splash in the market but face huge obstacles as they try to scale. Many have struggled to grow or even survive with a single, niche offering, as they face a hurdles such as the regulatory jungle and funding issues. The paper warns that "long-term success requires a combination of market insight and experience that fintechs and digital ecosystems are ultimately unable to provide alone".
Both sides should focus on their core competencies, find suitable partners and then work out how best to structure their co-operation - through a dual-brand service, white label deals, or integration. This mirrors the approach currently taken by TransferWise, which is seeking partnerships with financial institutions to load its currency transfer app on bank Websites.
The paper concludes that B2B payments will undergo huge shifts in the new era of digitisation. "But by combining their strengths and creating synergies, forward-looking fintechs and banks can be at the cutting edge of these changes, and together lead the advance into the digital age."