Time for Fintechs and Banks to Stop Competing and Start Working Together
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The emergence of new financial companies is having a profound effect on the transaction services industry. Greeted with caution by banks wary of disintermediation, fintechs are now viewed as potential partners. Indeed, working together, banks and fintechs can use their complementary strengths to provide higher levels of service to their clients.
The rise of financial technology or 'fintech' companies was originally met with apprehension by many in the banking sector. The fear was that these newcomers, fresh-thinking start-ups– would lure away bank customers with user-friendly and fast services. Yet banks’ fear of disintermediation is now turning to optimism at the prospect of collaboration. Certainly, banks’ extensive and long-term client relationships, building years of mutual trust will prove difficult to prise apart.
What’s more, fintechs tend to have different strengths and goals from banks focusing on bringing new levels of speed, efficiency and convenience to specific parts of the value chain, while banks deal in comprehensive offerings, covering the whole spectrum of transaction services. With these differences in mind, collaboration represents a highly promising avenue for both parties with banks benefiting from fintechs’ technological expertise, and fintechs gaining access to banks’ through industry experience and client bases. Through such collaboration, fintechs and banks can develop advanced solutions to support existing offerings.
The Shape of Collaboration
This raises the question of how best to shape such collaboration. There are a number of options in this respect. One option is for banks to invest directly in promising fintechs encouraging them to develop products that will supplement and enhance their existing services. Similarly, banks can help fintechs by supplying the supporting infrastructure for their solutions providing them with the underlying settlement capability for trade finance services, for example.
A third approach is for both sides to develop solutions in tandem– with teams from banks and fintechs working together to forge a joint solution. In any case, banks must be sure that their fintech partners are reliable with a particular focus on the quality, integrity and security of their products.
Of course, for these collaborations to be successful there is a third party that must be considered the client. It is critical for banks to work closely with clients and fully understands their needs and the practical requirements for building solutions into their existing workflows. These efforts are now beginning to bear fruit.
Blockchain technology, for instance, promises to solve many of the problems created by time consuming paper-based processes in trade finance replacing them with fast, efficient and transparent procedures that will benefit all participants.
In cash management, meanwhile, payments will also evolve significantly with greater synchronization between payment and service provision. For instance, while payments are currently triggered by the receipt of an invoice, in future the confirmed receipt of goods or services could serve as the trigger instead leading to vastly more efficient business processes.
These projects are smaller, more agile and more cost-effective than past bank innovations, meaning many more can be pursued at a given time than was previously possible and those that prove successful can be brought to market faster than ever.
However, these new technologies will have to be standardized if they are to realize their full potential. Industry bodies and regulators have a significant role to play in this respect creating standards and rules that will ensure clarity and fairness in the market.
This is just the beginning of an exciting future for bank-fintech collaboration, as advances in technology and standardization drive a never more integrated financial services landscape. This is something we are keen to build upon at AirPay combining our strengths and those of our partners to provide the best possible service to clients. We offer solutions for Retail sector, Hospitality Sector, Education Sector and BFSI in India.