Banks and FinTechs Now Prioritize Collaboration Over Competition

Tough times make tough businesses and underscore the viability of their corporate strategies.

Deploying a viable go-forward strategy has never been more critical, particularly for financial firms — both incumbent and emergent — looking to stay competitive within today’s operating environment, according to business leaders.

The ongoing digital shift is placing even greater pressure on banks to partner with FinTechs.

“It’s a reevaluation of the question of build versus buy versus partner,” Igor Bazay, head of finance at Enigma told PYMNTS in April.

“[W]hat this environment shows is that partnerships should be a part of that conversation to an extent that they were less so in the last couple of years,” he added.

Banks and FinTechs increasingly rely on each other for data sharing and compliance to best meet a new cohort of digitally native customers where they are.

Traditional Approaches No Longer Work

Historically, banks and legacy financial firms have chosen to either buy or build their own digital solutions, rather than partner with other businesses that they may view as competitors or competitor-adjacent.

But these approaches come riddled with pitfalls, including being saddled with what can be unexpectedly high costs required to maintain unique, wholly-owned solutions, or being locked into a long-term vendor relationship with a formerly modern solution that quickly falls back from the cutting edge.

It’s rare these days to find financial firms that can compete — and win — based on the strength of a single strong product. Additional services are typically needed to meet the evolving needs of an increasingly digital and always-on end-user audience.

Financial firms today are realizing that by partnering with innovative FinTechs, they can deliver additional and relevant products to their customers without spending years or deploying painful amounts of capital building it from scratch themselves.

PYMNTS research in “The FinTech-Bank Relationship Shifts Toward Collaboration” showed that 65% of banks and credit unions have entered into at least one FinTech partnership in the past three years, with 76% of banks viewing FinTech partnerships as necessary to meeting customer expectations.

The new financial services landscape is being reshaped by ongoing partnerships and collaborations that focus on the same end goal: improving the user experience.

By using flexible deployment options, including application programming interfaces (APIs) and customizable feature sets, collaborations between banks and FinTechs allow firms on either side of the partnership to come away with value-add integrations.

Data showed that 95% of banks are focused on using partnerships to enhance their own digital product offerings.

Banks and FinTechs Increasingly See Each Other as Partners

The skillsets of banks and FinTechs are well-positioned to create a positive network effect. Banks are familiar with the required nuances around government regulation and industry risk, and FinTechs can provide needed future digital design and experience.

Working with banks can also provide FinTechs with an infusion of cash as venture funding dries up and valuations plummet.

Upcoming U.S. regulation around open banking likely will make bank-FinTech partnerships a necessity. The Consumer Financial Protection Bureau’s (CFPB) proposed open banking framework mandates that banks provide qualified third parties with access to consumer financial data — including settled and unsettled transaction and deposit data, consumers’ personal information and other miscellaneous information — through the use of application programming interfaces (APIs), much as Europe has been doing for years now.

Although the specifics may change by the time the rules go into effect, banks and FinTechs will likely need to rely on each other to ensure compliance.