16 July 2021
Banks and FinTechs: Having lunch together
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"Eat or be eaten", "Fintechs are eating the bank's lunch", "Fintech will eventually eat the banks". Just some headlines from respectable news sources when searching for "FinTechs winning revenue from banks": the eating analogy.
Most of these headlines are generated between 2016 and 2019. Only since a few years a lot happens in terms of market dynamics: FinTechs are gaining ground and are growing into serious financial players like Chime, Nubank and N26 (digital banking), Stripe and Revolut (payments), Robinhood (retail investing), Klarna and Affirm (consumer lending), but also Tink and MX (core banking).
Of course banks realise that business models will be tested and downsized even further as almost all research is indicating, but banks have made serious changes to cater for that.
Most banks that TreasurUp communicates with have changed core elements of their business models:
- Cooperation with FinTechs is no longer a ‘nice to have’ but a ‘need to have’.
- Banks have set up massive investment funds to invest in promising FinTechs (mainly series A and above) and through those learn about their business models.
- Banks are allowing cloud and external services more often even in critical parts of their operations and businesses.
- Banks have finally started to have business and IT cooperating as one team (or tribe, or squads).
- Banks have started building models for BaaS (Banking as a Service) which means the bank is where the client is.
The rather sudden rise of FinTechs may have been a necessary wake up call for banks to adapt to these underlying trends in financial services.
Banks are catching up quickly. They have started offering many connectivity points for bookkeeping platforms (ERP), payment service providers, insurance market infrastructures and many trading venues.
Banks are increasingly choosing for the partnership model with FinTechs instead of the more black or white – buy versus build – strategies. These partnership models go much further than obtaining a license and SLA terms. It involves joint idea generation, client validations, setting up new business models in order to jointly benefit from. It means learning and developing together.
At TreasurUp we partner in several ways:
- We aim to apply the 80/20 rule: re-use 80% of what has been developed already and tailor the last 20% for each individual bank with its unique regional, commercial and regulatory context.
- Bank change boards: having banks extensively involved in future developments, not only for minor changes.
- Co-development of new modules: large new modules require guts and a certain level of commitment. Doing this together brings both of that; and more.
- We help banks that do not have online commercial banking services well developed to move towards online services for SME clients in the areas of FX risk and liquidity management. For that we use the knowledge and experience of our existing and advanced tier 1 and 2 partner banks.
So, according to TreasurUp it is not that black (buy) or white (build) and it is not a matter of eating or being eaten. It is about joining the table, for lunch.