Trends: Best of frenemies – why banks and fintechs have to collaborate | Fintech Recap 2017

By Alex Hammond | 13 December 2017

When digitally native financial services and next generation fintech first emerged as legitimate contenders to incumbent banks, battle lines were understandably drawn. You couldn’t attend a banking conference for several years without hearing the expression “fintech’s intention is to eat your lunch” seemingly on repeat.

Fast forward to 2017, and the atmosphere has undoubtedly changed somewhat. Whilst neither party is completely at ease with the other’s position, there is much more of an understanding that a healthy relationship between established financial giants and more nimble, creative, digital natives can be beneficial to both parties.

High street banks can rely on a certain amount of customer loyalty, although most studies indicate that Millennials are less loyal customers across the board than previous generations. Where they do certainly have the edge over disruptors is trust and volume of clients.

Incumbents also hold a huge volume of data on those clients, which if analysed correctly, could unlock many of the questions to better customer engagement, and in theory have more resources at their disposal than disruptors to act on that data.

But in the era of customers deserting brand loyalty in favour of better UX, can traditional banks innovate quickly enough to compete on that battlefield with their new rivals? The short answer is no.

Legacy technology, much of which is decades old, and dwindling IT budgets to overhaul it, coupled with massive organisational red tape, mean that in reality banks cannot keep up with the pace of change the financial services industry as a whole is undergoing. And with UX and cost now being the critical components in customer loyalty, that could spell the end for many of the most established banks in the world in the long term.

It may currently be a metaphorical trickle of customers who are switching to fintech and digital natives, but the flow of customers is only moving in one direction.

So what is the solution? Simply put, traditional banks have to acquire the principles and expertise of the next generation of financial services whilst they still have competitive advantage in some areas to lean on, whether that be partnering with, acquiring, or incubating fintechs. Ignoring fintechs, or treating them with hostility, is no longer an option.

It is the realisation of this fact, and acting upon it, that has been one of the biggest fintech trends of 2017.

And who knows, it might not be too long until traditional financial services and today’s generation of start-ups may need to depend on the other’s strengths more than ever. When the true global tech giants of the world, namely Facebook, Google and Amazon, opt to dip their collective digital toes into the financial services pool (which they inevitably will do at some point) it will be even more critical to survival that traditional financial services and fintechs band together and combine their collective strengths.

For more insight, read our favourite financial services/fintech collaboration articles of the past 12 months:

The bobsguide debate: Who needs the other more, fintechs or traditional financial services?

Citi MD and EQ Global MD interview pt. 1: The power of partnership

The Global Retail Banking Report: The age of co-existence

BNP Paribas Fintech Development Director: “There is more to gain for both BNP Paribas and fintech start-ups through cooperation than competition”

Regtech is not about competition, it’s about collaboration

Fintech's role in financial services' drive for operational efficiencies

Will banking system providers collaborating with fintech start-ups become a trend?

Can digitisation save high-street banking?

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development