This Is Why Fintech Startups Need Banks

This Is Why Fintech Startups Need Banks

Many who follow developments in the fintech sector point out that, in order to survive, traditional financial institutions will have to adapt. This will likely involve some degree of collaboration with fintech companies. Rather than trying to outperform the competition at what they do best, banks can leverage young talent to improve their own services.

That said, while critics may depict banks as outdated and fintech startups as the generous young companies saving them from failure, this isn’t exactly the case. Many could argue that existing financial institutions will, in fact, play a crucial role in the fintech revolution. Rather than “leeching” off the success of startups, which some commentators often imply they’re doing, banks can, in fact, contribute equally to a startup’s success. Here’s how:

 

Giving Customers Confidence

confident

On one hand, some argue that part of the reason fintech companies have thrived is due to lack of consumer confidence in traditional financial institutions. However, that doesn’t mean consumers automatically assume a new startup is more deserving of their trust. Anyone who has signed up for a credit card with a less-than-reputable company knows that signing up for a financial service with an unknown brand can be risky. Thus, consumers may be cautious when exploring any new financial service, including fintech.

An established brand can help mitigate some of these worries. If a traditional financial institution partners with a young fintech firm, new users will at least know the company has the support of an existing, successful organization. This will make it much easier for new fintech startups to attract initial users.

 

Navigating Regulations

Offering any financial service involves navigating a regulatory framework that can change fairly dramatically depending on where your target customers live. Many fintech startups already struggle with the regulatory limitations imposed under United States law; overcoming this obstacle becomes even more difficult when they attempt to branch out to foreign markets.

That’s another reason many of them benefit from partnering with banks. Institutions that have existed for decades (and, in some cases, centuries) have already worked through the challenges associated with regulations. They can help fintech companies establish themselves in the market much more quickly by applying their own regulatory expertise.

 

Staying in Business

It’s no secret that most startups—in any industry—fail. While there are many different reasons this can happen, one of the most common is also one of the simplest: lack of funds. If investors don’t see returns fast, they might be unwilling to provide a startup with additional funds.

This is less likely to occur when a startup partners with an existing financial institution. Such institutions have a vested interest in the startup’s success, and they have the funds to keep it in business. This can give many fintech entrepreneurs the freedom to build their companies at a slower pace. Instead of rushing to get their services to the market, they can take the time to perfect them.

 

Marketing

digital marketingEven if a fintech startup offers a genuinely valuable service or product, that’s no guarantee of success. If customers don’t know the company exists, it can’t stay in business for very long. That’s why marketing is important.

However, young startups may not have the capital or experience to design and implement an effective marketing campaign. Banks, on the other hand, have the money to fund a strong campaign, as well as the experience to better determine what will and won’t work when designing one. While it may be valuable to listen to the suggestions of young entrepreneurs who might have a fresh and innovative take on marketing strategies, when it comes to getting the initial word out, it’s helpful to have partners who’ve been through the marketing process many times before.

 

Reducing Competition

While it’s highly likely that fintech companies will continue to pose a threat to financial institutions that refuse to adapt, none of those institutions will go down without a fight. They’ll use the resources they have to fend off the competition as long as they can. Some startups might not have the resources to survive such a battle.

However, when they collaborate, rather than compete, they become stronger. When fintech and traditional finance work together, everyone benefits—including the customer.

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