The ‘chemistry’ between banks and fintechs is neither straight forward nor easy to define. Martin Lehmann, Director of Platform Products at TIS, talks about how this has been evolving, giving us some ‘relationship advise.’ This is based on his years of experience consulting for banks and other financial institutions plus his 2 years at TIS, a fintech specializing in enterprise payment optimization.
Five years ago, fintechs were predicting that banks would soon be obsolete, however Martin feels that this was probably based on retail use cases and the rise of big tech. “I think that wholesale corporate finance and transaction banking is fundamentally a different ball-game. However, banks that do not complete a digital transformation and embrace the concept of agile will be left behind.” He feels that the future belongs to organizations that are client focused and can partner well on platforms while contributing to ecosystems. At the same time, Martin appreciates that it is a nearly impossible task to fundamentally change existing business models in large banking organizations.
When asked what banks and fintechs each bring to the ‘relationship,’ Martin says that “fintechs bring agility and speed, while banks bring trust, influence, a strong balance sheet plus a massive customer base. But even more important is the question of capabilities and mindset.” Martin explains that fintechs know how to build and sell software, whereas banks are novices here. Banks, on the other hand, are experts at building and selling financial products. To make the relationship work, both sides need to come together. “Without banks, fintechs will continue to sell ‘nice apps’, but struggle to establish deeper client relationships. Without fintechs, banks will most likely lose customers due to an inability to engage in a convenient and modern way.” “Banks have become increasingly risk adverse given the yoke of ever more regulation. Risk avoidance can lead to a culture of stagnation that kills any possible entrepreneurial spirit.” There is of course a flip side. Martin explains that fintechs are so focused on user experience and growth that risk monitoring and compliance can become an afterthought. A successful marriage of the two is the answer… but it can indeed be complicated!
Is there a way to break down the barriers and foster cooperation? Martin says, “Yes, but it is crucial to have a champion for the bank within the fintech and vice-versa. Banks and fintechs should be a ‘match made in heaven,’ but we need to overcome certain difficulties that come with an ‘opposites attract’ kind of mentality.”
What about urgency and focus? Martin feels that most fintechs have a strong culture of urgency. They are driven by a need to deliver rapid growth based on key metrics. “This is like a ‘fire under our feet’ and means that fintechs opt for shorter iteration cycles and rapid decision making.” On the other hand, Martin believes that banks have a high degree of focus, even if their urgency level is lower.
Do Fintechs and Banks need each other to scale? And given our world today can either make it without the other? Martin believes that no one succeeds alone, so partnering is key for both fintechs and banks. “However, having said that, I would not draw the conclusion that banks and fintechs absolutely need each other to scale. Fintechs can partner with many other providers, be it in the software, professional services or financial services space.” He
feels that scaling alone is hard, but there are a variety of options. Partnering with banks is an obvious choice. Banks, on the other hand, can also potentially re-invent themselves without the help of a fintech-partnership.
Finally, what technologies are particularly important for any fintech and bank cooperation? Martin feels that APIs would be the natural answer. “APIs are the future of system connectivity and the basis for Open Banking evolution.” However, for corporate banking, Martin said that the key is being multi-channel. In addition, data analytics i.e., the ability to take full advantage of the information available, is vital to build the next-generation customer experience.
Thanks to Martin, we now have a better understanding of the complexity of the relationship between banks and fintechs. So instead of the original question, a more appropriate title for this conversation would be that the relationship between banks and fintechs is certainly complicated, but the potential results are definitely worth it!