Fintech versus Banks: Time to Choose the Best Strategy
“The fintech industry is like an everlasting engine. Even in the most turbulent of times, when the world is beset by crises and hardships, its revs have hardly decremented. Well, and over time, this expeditious magnification of fintech is increasingly making banks wonder – what’s next? And there are only two possible answers to this question: competition or cooperation between banks and fintech. Only time will tell which of these options will dominate in the future, but obviously cooperation would be far more propitious. I want to share my thoughts on why.”
A basis for Saving Time and Money
The rapid growth of the fintech industry is a beauty to behold for all of us, but it’s worth noting that many fintech companies are still just start-ups that are unsure of their future. What does that say? Companies like these have very limited resources, and any solution that allows them to save is extremely important.
Meanwhile, in terms of time and financial savings, banks are a big help, because when FinTech companies decide to cooperate with them, they can help them have the most important things without eating up a lot of time and financial resources. In short, this is Banking as a Service (BaaS) offered by banks.
The BaaS model relies on banking institutions that offer fintechs the opportunity to offer financial services through cooperation. For example, carrying out banking operations under the bank’s license or allowing the use, modification and adaptation of software they developed themselves. As well as anti-money laundering (AML) tools or other important things. Fintech companies, such as electronic money institutions (EMIs) or payment institutions (PIs), can work with banks to avoid red tape and other lengthy procedures, thus entering the market much faster.
Experience has shown that building a fully operational infrastructure with your own licenses and things like SEPA and SWIFT payments, opening a bank account, AML tools, reliable IT platforms, and so on may take a year. However, by working with banks, you can start in just a few months.
With the ability to integrate all bank payments and other banking services into their own, fintech companies can start providing services to their customers quickly and without any major instant investments. Furthermore, banks can use their own experience to help fintech partners navigate the stringent regulatory rules that public authorities impose on the financial sector, which can sometimes be a significant barrier.
New products and services and increased customer satisfaction
Though it would appear that banks are able to provide slightly more benefits to fintech companies than they can get from themselves, fintech companies can actually provide no less important benefits by using the platform provided by banks with all the tools.
Close relations and cooperation between banks and fintech are a unique opportunity to expand the range of services, since fintech companies, which are known to be highly innovative, tend to develop products that most banks do not yet provide to their customers, and then “lease” the products to the bank later. In other words, using the bank’s platform for the realization of the product or technology developed.
For example, a fintech company could develop a new AML tool or a new service and then go and offer it to a bank, and the bank could accept it and then provide it to its own customers.
This is a situation where everybody wins. First, fintech wins, because they bring their product to an established business where it can be easily applied, and thus make a fairly quick profit. Second, thanks to the product brought by fintech, the bank’s customers win, because they get new and better services. Third, the satisfaction of the bank’s customers is fully increased without investing many resources.
The bank can focus on day-to-day, key matters, and by working with fintech, can offer customers new services and strengthen its position in the market without even expending too much time or money.
Give me opportunities, and I’ll help you grow them
Service for a service. As is the case in most other areas, the exchange of services also applies to cooperation between banks and fintech. And it is clear that the benefits can be far greater than when competing and trying to act alone.
Banks can confidently use the speed and flexibility of fintech companies in developing new products and services. And fintech companies can expand by using the expertise and experience of the banking sector.
Only in this way will even more innovative solutions be developed and implemented over time, which will improve the user experience and generate more revenue.
Everyone chooses for themselves what is the best and most appropriate. However, it is clear that it is much more beneficial for banks and fintech to take a path that may not be completely identical, but similar. To learn from each other’s experiences and share them, and give and take opportunities, rather than just being happy with ourselves and waiting for the other to make mistakes. This is one of the best formulas for pushing aside any thoughts of constant competition.
Ekmel Cilingir, Chairman of the Supervisory Board of European Merchant Bank