To gain the full benefits of innovation, collaborations between fintech and banks seem to be inevitable. Financial institutions need new opportunities for optimal sources of revenue. This calls for a major shift in prioritising their digitisation efforts with fintech partners.
It should now come as no surprise that partnerships between fintech and banks are booming. The fintech industry has access to newer technologies that allow banks to extend their services to a broader consumer base.
Mature fintechs like PayPal for example, have been a go-to payments option for people to utilise banking in a non-traditional setting. More people are becoming increasingly connected online. Consequently, this allows fintech companies to utilise rapidly advancing technology to continue changing the paradigm for financial services.
So what exactly is a fintech company?
The term “fintech” (financial technology) refers to technology that delivers financial services through software. Think of mobile payment apps, online banking services, cryptocurrency and similar. Its primary objective is to revolutionise the financial services industry by changing the way businesses and consumers digitally interact with finances.
Fintech, for the most part, is a broad term that extends across different areas of the finance sector. A few examples of these different types of fintech services offered by popular fintech companies include:
- Payment Processing Apps and Mobile Wallets provided by fintech companies like Google Pay, Venmo, Apple Pay, and Stripe.
- Stock trading Apps is another example of fintech offered by companies like Stash, Acorns, Robinhood, eTrade, to name a few.
- Robo-Advisors, another type of fintech that is provided by robo-advising companies including Ellevest, and Nutmeg. These companies offer algorithm-based management and recommendations to increase portfolio efficiency
How fintech and banks can collaborate to drive major innovation
Partnerships with fintech and banks have often been met with skepticism by traditional institutions in the past. Yet, this seems to be changing in recent years. These days, more traditional banks are realising there’s more they stand to gain, as fintech continues to revolutionise modern banking. And so far, these advancements don’t seem to be slowing down anytime soon.
The collaboration between banking and fintech can bring about fruitful benefits in the following ways:
- API access: Banks can offer this type of access along with other financial services to their fintech partners. In turn, collaborations between fintech and banks can provide fintechs with the ability to scale their offerings to become a central access point for their clients’ convenience.
- Navigate strict regulations: Banks can also assist their fintech partners in navigating the rigorous regulations that come with the financial services sector. This enables fintechs to carefully broaden their reach within the industry.
- Immediate access to advanced technology: Another crucial advantage of the alliance between banking and fintech is the direct access to the latest software or technology. These are usually delivered in the form of a white-label to banks and other financial institutions. In a nutshell, banks will be much better off teaming up with fintech companies to deliver innovative solutions. With less focus on developing and doing maintenance on their own in-house technology to save more time and resources.
- Improve brand reputation: The partnering companies can benefit from the good reputation of each others’ brand. Moreover, this can also work to broaden the customer base for each party involved.
In conclusion, alliances between fintech and banks can accelerate the growth process and can help bypass the challenges that come from scaling. By helping to increase market credibility, it can also introduce banks to new customer segments. As a result, this helps to generate more revenue. A successful collaboration can also be a great way to improve customer products. This can help to increase effective technology integration.Ye
5 examples of successful partnerships between banks and fintechs
Tradeshift + HSBC
What happens when one of the world’s leading trade finance banks and the world’s largest business commerce platform come together?
They create a valuable partnership that will enable businesses to manage their working capital requirements. And to manage their global supply chains from any device, using one simple digital platform.
This innovative solution between HSBC and Tradeshift was created to assist companies who wanted to digitize and automate their operations. This way they can increase overall efficiency, visibility, and enhanced risk management.
2. Deutsche Bank + Traxpay
Deutsche Bank wanted to invest in supply chain financing. The goal was clear: to create a partnership where they can integrate these supply chain solutions and technologies within the bank’s own offering.
Thus, the bank partnered with Traxpay – a German fintech company that offers discounting and reverse factoring solutions for its corporate clients.
This collaboration now enables the bank to play a leading role in supply chain financing across the globe.
3. Banking Circle + SIA
SIA is a leading european fintech company specialising in payment services. Today, this payments company collaborates with the new, fully licensed payments bank, Banking Circle, to provide instant payments service and infrastructure in Europe.
Their relationship so far has turned out to be a sustainable one. Currently, this partnership allows European financial institutions to execute instant payments within seconds with a maximum amount currently set at 100,000 euros per individual transaction everyday, all year long.
4. N26 + Wise
This alliance introduced an API platform that allows its users to send money abroad fast, easy, and reliable. Simply with their N26 bank account, without any hassle or hidden fees.
5. Subaio + ABN AMRO
ABN AMRO, the third-largest bank in the Netherlands, set out on a mission to focus on innovation that would provide its users a convenient way to manage their recurring payments.
This is why, when ABN AMRO joined forces with Danish fintech company, Subaio, the collaboration achieved massive results.
This alliance contributed to the innovative success of the Grip App. A platform where the bank launched the white-label recurring payment management feature provided by Subaio. This digital platform provides its users with a one-stop shop to manage their recurring payments online.
As a result of its success, this venture led to another innovative collaboration between both partners shortly after.
Subscription Management. The benefits for the bank and its customers
Latest trends in banking and fintech partnerships
Some of the exploding trends making waves in the banking and fintech landscape include:
- Open Banking: By definition, Open Banking is the use of Application Programming Interfaces (APIs) to allow third-party financial service providers access to financial data, and consumer banking from banks and non-bank financial institutions. As this new wave continues to thrive, banks are able to see significant benefits in revenue from making the shift towards API-enabled platforms. This is evidenced by the ability to increase the number of customer accounts created. Also the ability to charge processing fees, and to charge for API calls in some cases. Open banking also strengthens consumer relationships by providing customers the ability to conveniently manage their finances online. As this trend is being adopted more and more across the finance sector, this is allowing companies to innovate and collaborate on new solutions much faster.
- Increased focus on cybersecurity: Due to advancements of trends like Open Banking, more concerns have been raised about privacy, fraud, and security. Banks and fintechs are now looking for ways to diversify the way financial data is stored. Companies are implementing security measures like the use of cloud platforms to protect data. Also companies looking to take security a step further are now establishing ‘Cybersecurity Ops teams’, consisting mainly of security engineers. With the sole purpose of meeting the high-security demands of the digital landscape.
- Decentralized Finance (Defi): This growing trend is generally based on crypto & blockchain technology, and NFTs (Non-Fungible Tokens). These financial technologies are intended to be used worldwide across banking, insurance, and other financial service sectors.
- Expanding BaaS (Banking-as-a-service) platforms: Leading banks are announcing their own BaaS platforms. Increasing investments into more advanced API-type technologies. With this new trend on the rise, BaaS is set to become an estimated €7 trillion industry by 2030.
- Fintech and the ‘Green Economy’: Sustainability, good governance, environmental and social responsibility are among some of the newest trends in financial innovation. Some traditional and non-traditional banks alike, are making the shift to offering green products and services. Relying on specific groups, including fintechs, to help them meet these goals. They intend to achieve this through the use of advanced data analytics, artificial intelligence, tokens, and more.
As technological advancements make headway, it is becoming more evident that fintech and banks can in fact, create a mutually beneficial relationship. Banks are seeking to leverage the agility of fintechs’ offerings. Fintechs are looking to scale and improve the experience of the traditional banking sector.
This has led to several explosive partnerships in recent times. As these partnerships continue to form, this creates more innovative solutions that are enhancing consumer experience, while generating more revenue.