How fintech and banks can collaborate for a digital banking future

For years, traditional banks looked at fintechs as uninvited disruptors in the financial sector. But that point of view is shifting now with the meteoric rise in e-payments and digital financial service models. The pandemic was a significant accelerator of the adoption of technology in the global financial industry. The fintech and bank collaboration will bridge the gap between the world of legacy and digital finance to kickstart partner-centric financing.

To stay up to date with the changing customer preferences in the new age, the relationship between legacy banks and fintechs has been evolving. The narrative has been shifting from competition to collaboration. The collaboration between legacy banks and fintech players has already dramatically evolved in the last couple of years giving rise to regulatory changes, increase in customer adoption and customer-centric digital ecosystems.

Why banks collaborate with fintech – key factors driving the collaborations

The fintech sector is creating new products, business models and markets for today’s fast-paced financial ecosystem. The sector grew unafraid even during the pandemic and it today has produced several unicorns that are together disrupting the financial sector in India. 

However, even with amazing products and business models, fintechs lack the investments required to bring about the change they have envisioned. This is where legacy banks join the party. With vast repositories of funds, banks can help fintechs innovate and also leverage from the innovations. Not just that, the benefits of fintech for banks go well beyond revenue investment.

Below are the key factors driving the collaboration between banks and fintechs:

• Reputation of banks

Banks are legacy financial institutions with excellent market reputations. Fintechs can benefit from their stature and quickly build a loyal customer base with the collaboration.

• Digital innovation of fintechs

Digital innovations and payment solutions led by the best digital banks are changing the way customers behave. The collaboration between banks and fintechs can help them both to sustain the change and grow together.

• Increase in customer base for both

The collaboration between banks and fintechs can allow both the parties to tap into each other’s existing customer base. This can enable them to reach an untapped segment of customers and widen their market share. 

• Huge budgets of banks

Banks have mammoth budgets, which fintechs can leverage to enhance their technology, product suites and customer-centric services. Later, fintechs can inculcate the newly-developed services like digital branch banking into the bank’s system and help them scale and become a differentiator in the market.

• Legal and compliance knowledge

Fintechs can greatly benefit from all the necessary legal experience around regulatory things, which banks are proficient in.

Importance of banks and fintech collaboration

With the evolution happening in customer behaviour, fintechs are acting like catalysts for banks. They’re helping banks with cutting-edge technologies like AI and machine learning to work up their services and cater to their customers’ changing needs. The market is relying on the collaboration between banks and fintechs to take the finance industry to new heights. The joining of hands between banks and fintechs is surely going to benefit both the entities and the industry as a whole as well.

Benefits of banks collaborating with fintech

Below are some of the benefits of banks collaborating with fintech:

• A customer-centric approach to banking is getting its due importance:

Historically, legacy banks have been slow to adapt to changes. Time-consuming practices, glitchy processes and rigid systems have not led innovation to take shape, hampering business agility. But by collaborating with fintech, banks are tasting the results of innovation such as following a customer-centric approach.

• The demands of evolving customers are being met:

Fintechs are reforming financing with their digital-first take. They are quick to respond to customer needs and can easily create new products and services to meet customer needs.

• Banks are getting their hands on new-age technology:

With the collaboration, banks are now able to access a range of technologically advanced applications and platforms like online digital banking. In this way, they can offer digital banking solutions and appeal to their younger audience.

Read More: - How Can Digital Banking Help Growing Economies Like India?

Fintechs are also leveraging established banking networks to attract new customers. Thus, even fintechs have much to gain from their partnership with banks. With the years of experience of legacy banks, their deeply entrenched market position, regulatory knowledge, global footprint, brand strength and sizable budgets, fintechs can increase their global banking system share.

Types of bank-fintech partnerships

Below are the two types of bank-fintech partnerships that are taking shape:

1. Banking-as-a-service:

Banking-as-a-service (BaaS) has enabled fintechs to offer the core banking services to their customers. Fintechs are able to build products on the back of the legacy banking infrastructure and enhance customer experience. Such a collaboration is a win-win situation for both the parties as banks benefit in the form of increased customer engagement or sales.

2. Fintech as a technical partner:

In this kind of bank-fintech partnership, a bank purchases a customised white-label solution from the fintech to create a seamless experience for its customers.

Future of bank-fintech partnerships

The future of digital banking looks promising. The collaboration between banks and fintechs is sure to thrive with the evolution of customer-centric financial models and new digital ecosystems. Banks must engage more with fintechs to leverage the advanced technologies developed by fintechs. Also, fintechs need the expertise of banks to understand customer behaviour and increase customer engagement. The two parties together can bring a revolution to the entire financial landscape of India.