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Most of the fintech industry is made up of startups and SMEs, while most traditional banks have amassed a global reach, and are drastically bigger in practically every respect. Despite this, both parties stand to gain a lot when it comes to partnering with one another. 

To better understand the role collaboration plays in driving innovation within fintech and banking, we hear from Jackie Toole, vice president of financial services at NTT DATA Services, who offers her expertise on the topic. 

The banking industry stands at a crossroads. In the face of struggling global economies, significant inflation, and uncertain markets, traditional banks are grappling with digital transformation challenges and the pressure to meet consumer demands, all while ensuring regulatory compliance. The desire to build better, more personalised experiences for consumers has increased over the past decade thanks to the rise of fintechs, as well as other more agile and innovative players in the financial landscape.

As a result, legacy banks are now under increasing pressure to deliver new, timely, and innovative products and solutions, or else lose customers to the more agile challengers in the market. The need for innovation is clear, but many financial organisations are still struggling to grasp where to start or how to accelerate their transformation.

Changing the point of view

Too often, the optics of the situation are misplaced from a banking point of view. Rather than viewing fintechs as challengers and threats to financial institutions, banks need to shift their mindsets towards seeing these digitally-native businesses as potential partners to collaborate with instead.

Both banks and fintechs bring unique perspectives and, in turn, can complement each other nicely, with both sides lacking something that the other has. Traditional banks have extensive customer bases and substantial financial resources but are often encumbered by legacy systems and stipulated processes, while fintech businesses bring agility and technological innovation. These disruptive entities are unencumbered by legacy systems, allowing them to experiment with innovative solutions, yet they do not have the funding or customer base to grow.

The benefits for banks

The benefits of banks leveraging fintech agility and scalability of modern architectures are substantial, offering a pathway for traditional financial institutions to enhance their operations and stay competitive in the digital era. The agility of fintech players stems from the ability to swiftly develop and deploy innovative solutions without the constraints of legacy systems that often burden traditional banks. This agility enables fintech companies to respond promptly to market trends, customer needs, and regulatory changes.

Furthermore, scalability is a key asset of fintech operations. Their technology-driven models are designed to efficiently scale operations in response to growing demand or evolving business requirements. Banks partnering with fintech entities can leverage this scalability to enhance their own capabilities, ensuring they can efficiently accommodate shifts in customer volumes, transaction volumes, and technology requirements. This adaptability is crucial in an environment where customer expectations and technological advancements continually reshape the financial landscape.

By tapping into the agility and scalability of fintech, traditional banks can not only accelerate their innovation cycles but also fortify their ability to meet the dynamic challenges of the digital age. This collaborative approach allows banks to complement their stability and legacy strengths with the nimbleness and cutting-edge technologies offered by their fintech partners.

The benefits for fintechs

A collaboration between banking and fintech entities is not just a one-way street, fintechs also stand to benefit from such a relationship, finding immense value in tapping into the global reach and well-established infrastructures of traditional banks.

Partnering with larger banks provides fintechs with a gateway to expand their services across diverse geographies. The global footprint of international banks can open doors for fintech startups to access new markets, navigate complex regulatory landscapes, and tailor their solutions to meet the diverse needs of customers in different regions. This collaborative approach allows fintechs to scale their operations internationally more efficiently than if they were to navigate such complexities independently.

Moreover, teaming up with traditional banks provides fintechs with invaluable knowledge and regulatory expertise. Established financial institutions have a wealth of experience in navigating and complying with intricate regulatory frameworks, which is instrumental for fintechs seeking to ensure compliance and build trust in new markets. Leveraging the regulatory knowledge of banks helps fintech startups navigate legal complexities, reducing regulatory risks and fostering smoother market entries.

Additionally, fintechs gain access to the inherent trust associated with longstanding financial institutions. The established reputation and credibility of traditional banks can be a significant asset for fintechs looking to build trust with customers, especially in an industry where reliability and security are paramount. Collaborating with banks allows fintech startups to leverage the trust that consumers inherently place in traditional financial institutions, providing a solid foundation for the adoption of their innovative solutions.

Innovation as the common ground

Within the collaborative efforts between traditional banks and fintech startups, innovation remains the focal point. Both entities recognise the imperative to remain at the forefront of technological advancements, driven by a shared commitment to delivering cutting-edge financial solutions to consumers.

In this collaborative landscape, banks provide a stable foundation for fintechs to experiment and innovate, supported by their deep industry knowledge and infrastructure. Simultaneously, fintech startups inject fresh perspectives and agile methodologies into the traditionally conservative banking sector, catalysing transformative changes.

A way forward

Having worked both directly for and with legacy banks and digital fintechs, I have had the opportunity to participate first-hand in the transformational power of these collaborations. I’ve seen the results that these partnerships are enabling in the form of new capabilities, accelerating speed to market and significant improvements in customer satisfaction, which deliver wins for the legacy banks and the fintechs, but most importantly, for the customer too.

It is clear that there is a wealth of opportunities to collaborate between legacy banks and digital fintechs. This approach, rather than fostering competition, is necessary for the sustained growth of the banking industry and is pivotal for propelling the industry forward. Both parties stand to gain from such a partnership, creating a collaborative dynamic that holds immense promise for navigating the evolving financial landscape and establishing a banking industry defined by innovation, inclusivity, and unparalleled financial services.