The relationship between FinTechs and Banks has evolved over the years, with the most recent focus on collaboration and partnerships. Although partnerships between FinTechs and Banks have not always been plain sailing, many have learned from the experiences, good and bad, and are now better positioned to partner and collaborate. Nonetheless, creating a partnership between a FinTech and a Bank is still a long process that takes months and sometimes even years to be completed.
A new trend that has been brewing in the background is FinTech to FinTech partnerships.
This is an interesting trend both from a FinTech and a bank perspective. The new model arose, in my view, due to three key factors.
- FinTechs in the industry are now much more mature and have a clearly defined proposition and USP (Unique Selling Point). They know what part of the value chain they can support and what benefits they bring to other financial organisations and customers.
- Partnerships experience
- Supported by their product maturity, FinTechs have moved from a competitive to a collaborative stance. They have tried and tested collaborations with other institutions and have seen first-hand that they can accelerate market penetration by complementing their offerings with others. One of the key issues many FinTechs faced in the early days was the access to large customer bases.
- Open Banking Model
- In simple terms, open banking is the use of open APIs (application programming interfaces) to enable third parties to build applications and services. Although the API model started slowly, it is being adopted more and more across the industry, allowing companies to innovate and collaborate on new solutions quickly.
From a Bank’s perspective, a FinTech to FinTech partnership is also an appealing concept. Mostly when made at scale and there is a FinTech network.
If a bank decides to partner with one of the FinTechs, they will be able to plug into other FinTechs that are part of the network, also known as a FinTech-As-A-Service (FAAS) model.
This model will reduce, and sometimes eliminate, the scouting and identification process for new tools. It allows quick access and deployment of new technologies, which are already connected with existing partners, eliminating data and process breaks.
However, there are still some limitations to this model.
- In this model, the bank’s onboarding process for new FinTechs will not be changed. Every time the bank wishes to plug into a new FinTech, they will have to go through the normal onboarding process, which sometimes takes many months to complete.
- There is still a need from the bank to look at its onboarding process and simplify it, while still meeting the regulatory and compliance requirements.
- Ultimately, Banks will need to ensure they don’t become too dependent on the network and continuously scout and engage with other FinTechs to ensure that the best solution is selected.
Overall, this a relatively new trend but an exciting opportunity for FinTechs, banks and customers. As more networks are created, and all parties start to engage and leverage the concept of FinTech-as-a-service, the model will iterate and evolve.
This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organisations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated.
Rita Martins drives Innovation and FinTech Partnerships for Finance and Risk, at HSBC. See her personal blog here.