Anyone with an interest in the fintech revolution knows emerging companies and innovations have put traditional financial institutions at risk. As startups continue to offer users convenient alternatives to numerous financial services, banks and other established institutions will have to adapt to stay relevant. Collaborating with fintech companies is likely the most effective way to do so.
Obviously, the specifics will vary on a case-by-case basis. An insurance provider collaborating with a new insurance technology startup will not work together like a major bank and banking app developer will. However, the following points can provide a general idea of what the future of fintech collaboration will involve.
Offering Existing Products
Traditional financial institutions certainly have some advantages that fintech startups don’t. Brand recognition is a major one. Although many consumers are wary of any kind of banking due to the recent financial crisis, they still tend to engage with institutions they are already familiar with. As such, a quality fintech product may fail outright without a good marketing strategy to build that name recognition.
Thus, it can be helpful for both startups and banks to leverage the advantages each one offers. For example, a fintech company may offer an innovative new product that simplifies a banking task or another financial service. A traditional banking institution can partner with them or purchase their product and offer it to existing customers. That’s what happened with Esme, a fintech-based lending service that has since been used by institutions like RBS. This process of “white labeling” fintech innovations and rebranding them accordingly can benefit both startups and established firms.
Serving as Consultants
Tech companies looking to get into the financial services industry should heed advice from those who are deeply familiar with applicable regulations. Thus, it makes sense to partner with traditional financial institutions. Existing firms can essentially serve as consultants, helping tech companies both big and small better understand how to effectively and safely offer financial services.
An example would be Amazon’s recent partnership with Bank of America. In an effort to develop a lending program, Amazon has worked with the second-largest bank in the US to grow this venture more efficiently. Smaller companies may benefit from a similar approach.
Having a good idea for a fintech product is not the same as having the funding necessary to realize your vision. Startups need help from outside entities to bring their products to consumers.
Banks can serve this purpose. Wells Fargo, for instance, has created an accelerator program that offers new fintech startups the funding, mentorship, and professional network they need to thrive. Traditional financial institutions that go this route can benefit from owning a portion of the resulting company or incorporating the product into their own services.
Adapting Existing Services
Some consumers may be relatively satisfied with the general services their banks and related financial firms offer. What they may not be satisfied with, however, is the bank’s inability (or unwillingness) to embrace the way new technology can improve those services.
This is another reason why collaboration can be useful for traditional financial institutions. Just as they can serve as consultants to tech firms aiming to offer fintech products, fintech experts can work with existing firms to help translate their current services into more convenient, updated versions. This allows banks to keep their customers while also keeping up with emerging innovations. The impact this can have on general consumer attitudes toward their brand may be very positive.
Becoming a Financial Hub
The fintech revolution has played a major role in threatening the continued relevance of traditional financial institutions simply because fintech companies and products offer benefits that existing firms can’t. However, that doesn’t mean there haven’t been some drawbacks. With so many new fintech products available, each one offering its own unique service, it can be difficult for consumers to conveniently and efficiently make use of them all.
That’s yet another issue banks can address. By partnering with fintech companies, banks can serve as central hubs for all of a customer’s financial service needs. As the fintech revolution continues, people will need easy ways to access the various products they use. Banks and other financial institutions can give them access to third-party services via their own platforms. This is particularly beneficial to the many consumers who already have accounts with banks.
While the specific ways in which traditional financial institutions collaborate with fintech companies will be somewhat different from one case to another, the points here summarize the general ways in which a collaboration may develop. Financial institutions that pursue these options will be much more likely to stay relevant in the years to come.