As a danger and an opportunity, fintech startups are a double-edged sword for the world’s largest banks.
Fintech firms, such as those that make it simpler to lend money online, threaten traditional financial institutions as they steal their consumers. However, fintech businesses that help banks make better choices, boost efficiency, or service consumers through digital channels provide many great opportunities.
Some banks may see fintech as a threat, while others see them as an opportunity to integrate their solutions and learn from their digital-first approach through partnership. Collaboration may provide quantifiable outcomes if approached correctly. This article will focus on the main benefits for banks of partnering with fintech companies and which issues are solvable through partnership.
Benefits Of Fintech And Bank Partnership
Several fintech firms explicitly seek to steal market share away from large banks, while others are better suited to work as partners instead. FinTech firms are often fledgling startups with little capital and a modest physical presence. Their creativity and speed might be an excellent match for the size and resources that major banks have to assist innovative solutions to flourish.
There are several advantages that major banks can benefit from when working with fintech startups. Innovative products and services for specific markets may help large banks gain a competitive advantage. Fintech startups are often born out of a single innovative solution or service that fills a market need not previously serviced by traditional financial institutions, such as peer-to-peer lending programs.
Additionally, as the world becomes more and more digitized, banks embrace digital payments. To make their services more sophisticated for their clients, banks have begun to partner with fintech companies. In fact, Wallester is one of the most prominent companies that provides banks with services linked to cards. For example, with the help of API, as shown on this website, the chances of falling victim to fraudsters and hackers can be significantly reduced. As time goes by, more and more hackers steal the private information of bank consumers; however, when banks choose to rely on Wallester’s solutions, the chances are minimized. Additionally, customers can take advantage of the fast payments guaranteed by Wallester. The fact that the company helps banks become more effective and appealing to customers confirms that fintech companies and banks can have a beneficial partnership.
It’s possible that new goods and services, if in demand, allow large financial institutions to improve their products. Fintech businesses provide specialized solutions for a broader range of customers. People may make an internet purchase and pay for it later using services that allow them to pay for their purchase later.
Loyal clients of major financial institutions will be drawn to this viral invention. Other fintech businesses may improve financial transactions and procedures. Large banks’ consumers may benefit from new services such as online notarization, AI-driven banking security, and bill payment. Many banks will require fintech partners in their B2B and B2C companies to develop their development strategy. Customers of large banks demand more online capabilities than ever before.
Quicker time-to-market for bank solutions may be achieved by collaboration with fintech companies. Banks partnered with fintech may better serve customers and lay the groundwork for long-term growth. Anyone who utilizes new technology to digitize financial services or enhance transactions and procedures is a fintech firm. The worldwide fintech business was worth $7 trillion in 2020.
What Does The Future Hold
Financial technology enterprises may assist banks in competing against non-banking companies that enter embedded finance. The Economist Impact survey found that just 12 percent of bankers saw increasing competition from fintech, while almost half reported cooperating with fintech in the past year. Financial technology (fintech) was formerly considered a threat to established banks. Today it’s seen as a source of mutual benefit for incumbents and upstarts and a surge in collaborations to fend against non-financial competitors.
A bank or credit union “staving off” signifies that it has strategically decided to “join them instead of fighting them.” For payment or lending services integrated inside a non-banking product, incumbents may use fintechs’ technical skills and reap the benefits. As with conventional institutions, neobanks are using their charter to offer insured deposits and other capabilities in the form of banking-as-a-service providers.
Treasury Prime, Synctera, Unit, and Bond are just a few of the fintech companies that McKinsey mentions as having formed particularly to collaborate with banks to intermediate BaaS and embedded banking relationships. Although some banks are still wary of partnering with these or other fintech companies, this stigma must be overcome to stay competitive, particularly for banks that lack significant in-house IT skills.
“Many banks are worried that selling their products via partners undermines their customer relationships, but banks may have a little alternative if end users begin to use embedded financing in considerable numbers,” McKinsey argues. Enabling partners to sell financial goods is excellent news for banks since it is a low-margin, high-volume business. It is not uncommon for banks to be burdened by high operating costs due to outdated technology and manual procedures.