Symbiotic collaboration is key to fintech success
F intech companies have been long struggled to decide whether they should partner with banks, insurers, and financial services companies or compete with them.
However, in the past few years, the answer seems to have become clear.
Fintech firms are increasingly looking to build symbiotic relationships with traditional financial services firms, benefiting from their deep pockets, their networks, and their sway with the government – especially when it comes to innovative solutions that aren’t entirely regulated.
According to the Capgemini World fintech Report 2018, fintech firms have realized the complementary strengths they share traditional financial services firms and hence, are increasingly looking at forming symbiotic collaborations.
In fact, more than 90 percent of fintech firms surveyed said that agility and providing an enhanced customer experience are key competitive advantages. More than 76 percent cited their ability to develop new products and improve existing products and services as critical to success.
Their most significant challenge, the report discovered, was scaling-up and creating financially-viable business models. Although fintech firms have raised nearly US$110 billion since 2009, the report found that most are likely to fail if they do not build an effective partnership ecosystem.
“With more than 75 percent of fintech firms identifying their primary business objective as collaborating with traditional firms, it is essential that both fintechs and traditional firms transform their business models by collaborating to drive innovation while retaining customer trust. Without an agile and committed collaboration partner, both traditional and fintech firms risk failure,” said Anirban Bose, Head of Capgemini’s Financial Services Global Strategic Business Unit and Member of the Group Executive Board.
However, finding the right partner is obviously essential to a successful collaboration, and fintech firms are aware of that.
When surveyed, more than 70 percent of fintech executives said their top challenges to collaborating with traditional financial firms was the lack of agility.
Traditional firms, on the other hand, were worried about the negative impact on customer trust, brand, and changing the internal culture when adopting and incorporating fintech-based services into their firms.
“For a successful collaboration, both sets of firms will need to remain open-minded and keep a dedicated focus on collaboration. Financial institutions need to respect the fintech firms’ culture to avoid losing their agility, which is one of the major assets that they bring to projects. The next challenge will be to select the best-fit fintech with whom to collaborate,” said Vincent Bastid, Secretary General at Efma.
Consulting giant Accenture also recently studied fintech and banking companies, and felt that collaborative strategies can lead to better outcomes for banks and fintech firms.
Each could help the other develop productive ways to evolve, by combining the strengths of traditional banking with the innovative solutions offered by fintech lending.
And although the Accenture study was focused on the banking environment in Europe, the US markets aren’t very different when it comes to the nature of banking giants and the spirit of fintech startups.
The report found that, for fintech firms, competing with banks meant prolonged difficulties in scaling up and becoming profitable and that collaborating would improve fintech financial viability, attract more clients and, in some cases, obtain guarantees for deposits.
Further, the benefits it outlined for traditional banks to pay attention to such collaborations included achieving a three to five percent revenue increase—through enhanced customer acquisition, more fee-based revenues, better pricing accuracy and lower cost of risk.
It also found that such alliances could help avoiding putting two to three percent of bank revenue at risk—from lower loan origination, lower net income and fewer customers acquired.
In Accenture’s own words: Banks stand to gain capabilities in five distinct areas via fintech collaboration: customer analytics, comprehensive credit scoring, providing a fully digital customer journey, integrating digital platforms and portfolio management.
While it’s clear that there needs to be collaboration in order for fintech firms to thrive and flourish, it doesn’t seem like there is a concrete strategy in place as yet. But with all eyes on the prize that is “collaboration”, 2018 is set to be an exciting year.
10 December 2019
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