As this blog has pointed out before, traditional banking institutions can’t expect to survive while continuing to serve their customers in the same outdated ways they always have. The fintech revolution has provided consumers with alternative financial services that offer greater efficiency, convenience, and flexibility. It’s unlikely that customers will ignore these benefits simply out of loyalty to their bank.
That said, fintech companies often struggle to navigate the complicated regulatory waters of the financial services industry. They need guidance from those who already have experience in providing these services while adhering to all applicable regulations. Thus, traditional financial institutions and fintech startups do not need to compete. Instead, by cooperating with one another, they can leverage the strengths of both. Fintech companies can help banks adjust to the changing expectations of customers via technology, while banks can help fintech companies work with governments and regulatory agencies to ensure full compliance.
Fortunately, some existing financial institutions have realized that cooperation and partnership will be key to their continued existence. Through investments and acquisitions, they’ve made it clear that they’re willing to embrace what fintech can do for them and their customers.
While the following is not an exhaustive list, it does indicate that some traditional financial institutions—both big and small—are beginning to understand that fintech doesn’t need to be a threat. On the contrary, fintech startups can be strong and useful allies. The following examples demonstrate how.
Goldman Sachs and Clarity Money
One of the reasons why customers embrace fintech products is simple: they offer services that aren’t available through their current banks.
While this isn’t always the case, it’s common for banks to offer only a limited number of services, at least when compared to all the financial services they could potentially offer. Fintech products often fill in the gaps.
That’s why it was smart of Goldman Sachs to acquire Clarity Money. The startup provides services designed to help customers manage their funds more effectively. It does so by aggregating data from all of their financial accounts.
For the most part, if banks do offer these kinds of tools, they only allow users to manage funds in the accounts that they have with that particular bank. By letting users manage their entire financial needs via one product, Goldman Sachs may position itself as a more customer-centered institution in the near future.
Santander Uses Fintech to Reach More Customers
Fintech is unique when compared to other tech revolutions. Although many Silicon Valley startups are certainly creating products in the fintech sector, the geographic base for fintech companies is essentially global.
In many ways, this makes sense. Fintech products often help emerging economies to develop.
That may be why Santander recently invested in Creditas, an online lending platform based in Brazil. This marks Santander’s first major foray into the Brazilian fintech sector.
Although the specific terms of the investment remain undisclosed, it’s clear that leaders at Santander recognize the potential that these products offer. It’s also possible that Santander saw in Creditas the opportunity to reach customers in a part of the world where the bank may not have a strong presence.
That’s one more reason why traditional financial institutions should work together with fintech companies. Since these startups are based throughout the globe, such partnerships could help the institutions to reach more customers than ever before.
New Resource Bank Uses Fintech to Grow
Well-known banks find it difficult enough to survive in the financial services industry amid the fintech revolution. Small banks face even greater difficulties.
Fortunately, it’s possible to overcome these challenges. For instance, New Resource Bank, a small organization based in San Francisco, partnered with Denver-based fintech company P2Bi to help small business owners secure commercial loans that other banks may not approve.
New Resource serves as an “alternative lender” that banks refer potential customers to when certain aspects of their financial situation disqualify them from receiving typical commercial loans. New Resource provides half the funding, while P2Bi handles the technological side, providing the necessary infrastructure.
The approach may represent the best way for smaller banks to succeed in the shifting financial landscape. Rather than offering traditional services, they can specialize in relatively niche fintech services in order to offer customers the greatest possible value.
This is yet another example of banks recognizing the benefits that fintech companies offer. Rather than trying to beat them at their own game, they can cooperate, allowing the startup, the bank, and customers to benefit from the strengths that each party brings to the table.
The fintech revolution shows no signs of stopping, and these financial institutions appear to understand that. Rather than being left behind, they’re taking steps to adapt. That’s good for everybody.