Three quarters of fintech companies place working with traditional financial services firms as their number one business priority, according to global research.
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Those that don’t develop relationships with the established players are at higher risk of failure, according Capgemini’s World fintech report 2018, a survey of traditional financial services firms and fintechs.
The report found that about 75% of fintechs said their primary business objective is collaboration with established companies.
Fintechs are transforming customer experiences through mobile apps but these are usually used in conjunction with accounts they have with more traditional players.
“Fintech firms are finding success with a customer-centric focus that fills in gaps left by traditional firms. These gaps opened the doors to fintechs, but trust in traditional firms remains important to customers,” said Penry Price, vice-president, global marketing solutions, at LinkedIn.
The report said that although fintechs have raised nearly $110bn since 2009, most are likely to fail if they do not build an effective partnership ecosystem. And the traditional players need the fintechs as much as the fintechs need them.
“With more than 75% of fintech firms identifying their primary business objective as collaborating with traditional firms, it is essential that both fintechs and traditional firms transform their business models by collaborating to drive innovation while retaining customer trust,” said Anirban Bose, head of Capgemini’s financial services global strategic business unit. “Without an agile and committed collaboration partner, both traditional and fintech firms risk failure.”
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There are challenges on both sides when it comes to collaborating. Over 70% of fintechs said a major challenge working with traditional firms is that they lack agility while traditional firms find it a challenge to change their internal culture when working with fintechs.
Banks have addressed challenges by working directly with fintech firms as they develop from ideas to service providers. For example NatWest has a network of innovation hubs where it works closely with fintechs through their development from ideas to live services.
For example, NatWest said it has addressed the internal culture challenge by learning form the fintechs and encouraging traditional staff to start thinking like the fintechs.
One IT professional in the UK banking sector told Computer Weekly that banks will inevitably get involved with fintechs either directly through acquisition or indirectly through partnerships and investment.
“The banks are keeping a look out for emerging fintech and then invest in or become a customer or partner with the most promising firms. They hope to benefit from new tech without having to create it themselves while also preventing some fintechs from becoming competitors."
Fintech companies have three broad choices about how to proceed. They can focus on a niche service and becomes a leader, be acquired by a traditional player, or attempt to be a multi-service provider. The first seems most likely and requires fintechs to work with traditional players.