Is the Relationship Between Financial Institutions (FIs) And Fintechs Complicated? Not Anymore.
By Sumit Arora, Senior Vice President, Enterprise Payments Strategy, Wells Fargo
Building a Balance Between Competition and Collaboration
There is a long history between banking and technology, dating back to around 1866 when the telegraph was used to enable the first electronic funds transfer. For over 150 years, the desire for speed and convenience has been a catalyst for innovation that improves the financial lives of banking customers.
Today, “fintech” is the modern way of referring to the relationship between banking and technology. But the relationship has not been so simple historically. Where the focus was once on financial institutions (FIs) serving their customers using technology, now, technology has become its own monolithic function with the desire to “carry its own” when it comes to banking.
The financial services industry initially responded with resistance to disruptive banking technology outside of the banking walls due to concerns about reliability and security. And technology companies were similarly hesitant, citing speed and customization as issues. However, each industry quickly realized that forging a partnership would be the best way to expand their reach and serve customers. Customers not only want seamless banking experiences focused on speed and convenience, but they also want the comfort of an end-to-end relationship within the guardrails of security and longevity. The forward-looking fintech and banking partnership can provide that winning combination.
Banks and fintechs alike realize the opportunity for innovation goes both ways. Therefore, a melding of trust, culture, and communication for FIs and fintechs is essential to maximizing the relationship for mutual benefit. And this can be done. After all, the customer needs are front-and-center for both entities.
Understanding the Primary Driver for a Partnership in Order to Forge a Mutually Beneficial Business Relationship
Although they share similar goals of solving the customers’ needs, not all banks and fintechs are the same or want the same thing. There are different customer sets, solutions, and challenges. From an industry perspective, when we think of potential partnership between FIs and fintechs, we think about leveraging the industry expertise and scale of banks with the nimbleness and uniqueness of fintechs to create an integrated and elevated customer experience.
The key driver for a successful partnership is the ability to meet our customers’ requirements and their expectations quickly and adequately. From a bank’s perspective, we typically look for a fintech partner that has a customer-first mindset, with a specific outcome, not just a technology solution looking for a problem. Banks may not be best-in-class in every solution, and this creates an opportunity to find potential fintech partners that specialize in certain areas. Banks then try to partner and bring those fintechs to their ecosystem to bridge the identified gaps. The dynamics have moved from a historically closed-loop mindset of FIs trying to solve for everything by themselves to an import-export model with fintechs, where FIs think about what capabilities they would like to export to an external ecosystem and what capabilities they would like to bring within their ecosystem for their customers.
Although technology is not new to banking and banking is not new to technology, the relationship has clearly taken an evolutionary turn. Therefore, it is important that each entity leads with empathy and learns the unique strengths and weaknesses of either party to maximize the benefit of formally coming together to provide valuable solutions to the clients and customers they serve.
In the End, FIs and Fintechs Will Not Only Have to Coexist but Thrive Together
Until half a decade ago the answer to the question of FIs versus fintech used to be a zero-sum game. The narrative was all around fintechs are going to take over the world, and banks are going to go extinct. But now that dialogue has moved forward a bit. FIs and fintechs have a tremendous opportunity to take their relationship to the next level by acknowledging their long history together. On a go-forward basis, we will witness a world that is going to increasingly blend digital and physical, and it will be very hard for a single entity to do it all on their own. It will require an ecosystem, and entail the management and partnership of the system. The world will be very different 10 years from now, obviously, but it will still have a place for banks and fintechs to work together.
About Sumit Arora
Sumit Arora is a Senior Vice President and the Head of Ecosystem Enablement within Wells Fargo’s Enterprise Payments Strategy group. In this role he is responsible for developing and executing strategies with payments industry bodies for bank’s future payments initiatives, to help consumers and institutional customers move money seamlessly and securely.