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Amir Khan By Amir Khan • February 22, 2018

Why Collaboration Between Banks and Fintech is the Right Step Forward

A few years back, it was predicted that fintech would make banks slowly disappear. Industry professionals projected that 40% of revenues and 60% of retail bank profits would be put under siege by fintech rivals. But as technology progressed, the tide began to shift. Many leaders in the financial space now believe that banks and fintech can -- and must -- work together. But to fully understand how our industry finally arrived at this leg of the journey, let’s examine where we came from, where we are, and of course, where we’re headed.


Act 1: Fintech to the Rescue

The year was 2008, and we were in the midst of what is now widely considered the worst financial crisis since the Great Depression. Consumer demands were shifting, and a growing number of fintech products quickly proved nimble and elastic enough to meet the needs of a population largely ignored by new regulations. Alongside the democratization of big data, fintech startups brough disruptive change to specific business lines that banks once profited from, creating a space for tech-enabled startups to fill.

Act II: Banks Play Catch Up

The second wave of fintech innovation, which many people consider to be the current state of the industry, is characterized by large banks leveraging tech to remain competitive among growing startups. Many banks now have innovation centers that encourage the startup mentality, expanding their brand with innovative improvements. Despite these efforts, matching the risk and agility of startups is no easy task. There are corporate politics involved. People want to protect the brand at all costs, which can be an obstacle to quickly implementing new ideas. This could be the reason why an established player in the industry has only been able to react to what startups have been doing, instead of producing their own developments.

Act III: Seamless Integration

The third wave of fintech is just beginning to unfold, and will be marked by  fintech firms and banks working together. Fintech cannot disrupt big banks completely since the U.S. banking industry is heavily protected. The startups that recognize this will be the ones that will continue to exist, and drive positive changes. Banks have the money and time to do what fintechs aim to achieve, but it all comes down to prioritizing and finding a balance.

Banks that look to integrate fintech into their institutions have the incentive to create innovative solutions that are cost-effective, delivering seamless banking experiences that allow professionals to connect. Embracing fintech also draws in millennial customers, who prefer their customer experience to be convenient and quick. These partnerships create value for banks, as the solutions are usually designed around the business model, maximizing revenue and efficiency. Banks and fintech need to realize long term value, and work together to consolidate their strengths.