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Big banks and fintech startups: Rivals or allies?

fintech_banks

When fintech first came on the scene, the term was generally applied to the technology used in the back-end of financial institutions.

Nowadays, fintech is at the forefront of banking, giving rise to completely automated financial services with peer-to-peer lending platforms, cryptocurrency and internet banking revolutionising the way people bank, borrow and invest. 

These innovations in technology are making way for a financial and technology crossover space, where fintech and big banks are being forced to either compete or collaborate.

Big banks resistant to change

Big banks have been under increased pressure from fintech startups, particularly when this current tech-savvy generation is finding the offerings of internet banking and peer-to-peer services more enticing. 

Many argue that big banks are designed to resist change, and instead of undergoing a digital transformation, these establishments are setting out to compete against fintech to kill change. 

A lot of systems inside a bank, such as risk and compliance functions, are in place to stop such changes from happening. The main argument big banks have against collaborating with fintech is that it creates risk. 

In the UK, the Bank of England admitted that fintech could disrupt the stability of funding of incumbent banks. There is fear that in this ever-changing landscape, fintech’s lucrative services could drive consumers away from the big banks. 

On an existential level, fintech is raising the bar on how consumers think about banking. Not only do fintech’s provide great products, offers, and transparency, but they also provide a very high standard of customer care, despite not having the same level of human interaction as traditional banks do.

Also Read: Trust before technology: Why fintechs need to put more emphasis on trust

Partnerships driving fintech sector

Naturally, some big banks have begun to reposition this threat that fintech brings as an opportunity to take partnership.

By partnering and collaborating with smaller fintech startups, big banks are finding that they have the opportunity to further accelerate industry growth. 

Many can argue that banking has always been about technology and that fintech’s rise represents an evolution for traditional banking. 

Online banking platforms such as peer-to-peer lending platforms are complements to banks since they can help to improve financial inclusion.

Where banks thrive on a loyal customer-base, P2P platforms expand access to credit to borrowers underserved by the traditional banking system. In the same way, fintech’s help to fill in the gaps that traditional banks lack and help to expand markets. 

Specific fintech solutions can help to provide superior solutions for banks, giving them the opportunity to keep up with consumer demands and open up a larger customer base. 

There are some good examples of big banks complementing rather than competing with fintech. 

Some recent events proving that fintech is entering mainstream banking in a positive way include:

ANZ, Commonwealth and NAB banks with Fitbit

By leveraging existing wearable technology, Fitbit has partnered with big banks allowing them further growth and development, increasing the mobility of payments.

Also Read: How fintech is disrupting the Southeast Asian payments market

Visa and Plaid

Credit card giant Visa has recently announced its partnership with Plaid, a platform that provides digital finance products. Plaid’s products provide consumers with a convenient way to share their financial information with a variety of apps. Visa’s partnership with Plaid has seen one in four of its users using Plaid to make the connection to its mobile banking app, amounting to more than 200 million user accounts. 

Intuit and Credit Karma

American business and financial software company Intuit confirmed that it will acquire Credit Karma. The personal finance company offers consumers free access to their credit score, helps them to file taxes, shop for loans, and more. It boasts “the largest engaged member base in consumer digital finance with more than 100 million members, with 37 million monthly active users.”

The key takeaway from these examples is that fintech isn’t something Big Banks necessarily have to fear or compete with. The rise of fintech has merely opened doors by helping financial institutions to grow and expand, making it more cheaper and convenient for the average person to complete financial tasks. 

Summing up

While rumours remain high in regard to there being a growing competition between big banks and fintech startups, both have proven to be diverse enough on their own to be able to crossover and complement one another without implication. 

Many big banks hold the view that fintech can cause disruption to traditional institutions, and that they bring with them the threat of risk. Yet while fintech’s aren’t necessarily crucial to the growth and success of a bank, the collaboration between the two can bring about a competitive edge. 

Globally, there has been a rise in big banks successfully partnering with fintech’s, and both are reaping the benefits of this collaboration. 

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Image credit: Photo by Uriel Soberanes on Unsplash

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