In recent years, new fintech entrants have brought innovation to the financial sector like never before. And while some transaction banks may have initially viewed them as a threat to their market dominance, they are increasingly looking to learn from fintechs’ fresh approach to industry challenges. As such, many see collaboration as the way forward, with transaction banks and fintechs leveraging their respective strengths - and minimising their weaknesses.

Indeed, the risk of fintechs driving transaction banking disintermediation is largely overstated - in part because of their differing strengths and objectives. Fintechs generally aim to corner a specific service or product within the wider value chain, while many transaction banks have the scale and historical depth to offer a wide range of critical services across the entire chain.

What’s more, since transaction banks’ solutions are positioned in terms of wider customer relationships - many based on mutual trust forged over many years - it is unlikely that fintechs will challenge bank dominance any time soon. Nevertheless, they bring innovative approaches and fresh ideas to some of the most challenging problems in the industry. And if these can be combined with transaction banks’ industry knowledge and deep customer relationships, the benefits to both parties - and, by extension, their corporate clients - will be considerable.

A model for success
Such collaboration can be achieved through a number of different models or frameworks. Partnership models, for instance, have seen a great deal of success and are increasingly popular. These usually involve the bank integrating a fintech solution into their current offering, or supporting a fintech’s development by leveraging its historical industry expertise. Some partnerships involve the joint delivery of solutions to customers, while others might see a bank provide the financing capability to underpin a fintech solution.

For instance, UniCredit recently partnered with a fintech, integrating into their supply chain finance (SCF) platform to support one of the bank’s core relationship clients. The client benefitted from new levels of flexibility when financing suppliers, while UniCredit was able to offer support even when direct bank financing wasn’t required - strengthening the bank-client relationship. And, aside from the type of partnership, there are also choices to be made in terms of branding: a bank-fintech partnership could launch a product mutually under both brands, or the bank could offer the fintech solution as a white-label product, paying a licence fee to do so.

Transaction banks may also finance or acquire promising fintechs, and venture capital funds and growth accelerators are also used by banks to help develop fintech start-ups. UniCredit sees potential in this approach and has established UniCredit evo - a USD 200 million fund that focuses exclusively on identifying and investing in fintech companies. The bank also has a fintech accelerator in Italy that is currently supporting four of the most promising start-ups in the industry.

Only the best will do
Whatever the form a bank-fintech relationship takes, the customer must be placed at the heart of the value proposition - with a focus on matching or exceeding customer expectations of quality, security and integrity. Indeed, just like any start-up, a significant proportion of fintech solutions are destined to fail, while critical business functions such as the treasury can prove too complex for fintech solutions to tackle adequately. Banks must therefore carefully screen potential fintech partners to be assured of the quality of solutions as well as the long-term, sustainable viability of the overall offering. Above all, identifying the specific customer use cases most applicable to the technology is critical.

Without question, fintech entrants have triggered radical change in the financial services industry. At UniCredit, technological innovation has always been central to our approach, and we are excited to explore the potential of fintech to accelerate developments in the transaction banking industry and improve our customer offering. To have various parties collaborate, playing to their strengths to offer innovative new solutions is a win for all involved - not least the corporate customer.