This Is Why It’s Hard for Banks and Fintech Startups to Collaborate

This Is Why It’s Hard for Banks and Fintech Startups to Collaborate

The debate has been settled: yes, a fintech revolution is occurring.

In other words, traditional financial institutions can no longer dismiss the potential for massive industry disruption. They must adapt or die. Many agree that the best way to adapt is to collaborate with fintech firms, instead of trying to beat them at their own game.

Doing so would actually yield significant benefits for all parties involved. Banks will stay relevant by offering their existing customers superior service, while fintech companies can leverage the knowledge and expertise of established bankers to more efficiently navigate their way through regulatory obstacles.

However, cooperation will be necessary for both traditional banks and fintech to attain mutual success. That said, working together won’t be easy. Although banks and startups may wish to serve the same types of customers, their approaches are often radically different.

As a result, it’s essential for coordination and cooperation to begin now. Fintech companies and existing financial institutions need time to work through certain key issues before they can function together naturally. Issues they’re likely to encounter include the following:

Innovation vs. Tradition


Banks rarely make dramatic changes to their methods. They rely on proven strategies that have served them – and, arguably, their customers – well for decades. For a long time, there’s been little incentive to change.

Fintech startups, on the other hand, are driven by innovation. There’s little point in trying to replace current financial services if you’re not offering customers substantially greater degrees of simplicity and convenience.

Banks have entrenched ways of doing business. Fintech companies seek to develop entirely new strategies. When both work together, finding a middle ground could be challenging. Both sides must learn to legitimately value and appreciate what the other side brings to the table.

Fintech firms need to accept that established models can illustrate what types of methods are consistently effective. Traditional banks will need to realize that the “outsider status” of fintech startups allows them to approach financial services from a customer’s perspective.

Competing Goals

Theoretically, a bank and fintech startup would have the same goal in working together: to offer customers useful and convenient financial services.

In practice, it’s not that simple. Obviously both sides want to serve customers reliably. But that’s not their only goal. Banks collaborate with fintech companies to avoid being replaced. Fintech companies collaborate with banks to take advantage of their knowledge and existing relationships with customers. In a way, then, they’re made for each other.

However, finding a way to collaborate in a positive, cooperative manner will take time. After all, some banks likely wouldn’t work with fintech startups if their survival didn’t depend on it. Fintech startups would gladly edge banks out of the marketplace if they didn’t need their help to establish themselves. There’s a certain degree of competitiveness inherent in the relationship. Effective collaboration can’t occur until banks and startups address this.

Differing skill sets


Fintech isn’t the only recent technological threat to banks. Automation and artificial intelligence also stand to make numerous roles currently filled by human beings redundant in the near future. People with once-valuable skills will find themselves replaced by technology.

For fintech companies, this isn’t likely to be a significant problem. They have the advantage of starting their businesses with an awareness of what roles automation and AI could play. Instead of adjusting to these new technologies, they’ll simply incorporate them when the time comes.

In short, this means those working at traditional banking institutions are often equipped with skills that don’t match those of their fintech counterparts. On the one hand, it may be possible that banks and fintech startups will use their skills to complement one another. On the other hand, the differences could prevent them from simply understanding how to work together on a practical, day-to-day basis.

Fintech startups, anticipating the potential for automation and AI, might struggle to find valuable roles for bankers. Banks, having never used or developed the kind of technology a fintech startup brings to the table, could find it difficult to make use of the firm’s employees, many of whom will likely have skills better suited to coding than banking.

Again, none of this changes the fact that collaboration is something both parties will need to embrace. Outlining these types of challenges doesn’t serve to illustrate the futility of collaboration. Instead, it serves to highlight a crucial truth: if banks and fintech startups are going to work together, they must both step back from their own perspectives and learn to genuinely value one another.

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