Over the past decade, the financial technology (fintech) industry has emerged as a major force in the financial sector, disrupting the traditional banking landscape. With the rise of digital technology and changing customer preferences, traditional banks are no longer the only players in the game. Fintechs have grown rapidly, offering customers innovative and convenient financial services worldwide. This has led to a debate on whether banks and FinTechs are competitors or collaborators.
On the one hand, traditional banks have been around for centuries and have established a reputation for stability and trust. They’re supported by governments and are subject to rigorous regulatory standards, which instill confidence in their customers. However, they often face challenges in keeping up with technological change, as they have cumbersome systems and outdated processes that make it difficult to innovate quickly.
On the other hand, fintechs are generally newer, more agile, and better equipped to respond to customer needs and rapidly changing market conditions. They have modern technology at their disposal and are known for offering innovative, convenient, and user-friendly financial services. Yet, they face challenges in building customer trust due to their lack of an established track record.
In this article, we will explore the relationship between traditional banks and fintechs in detail and evaluate whether they are competitors or collaborators in the financial industry. By analyzing the strengths and weaknesses of both traditional banks and fintechs, we aim to provide a comprehensive understanding of how these two players can work together and collaborate to offer better financial services to customers. The article will conclude with a discussion of the potential for collaboration between traditional banks and finechs and how this can benefit both parties while driving innovation in the financial sector.
Rivalry as a push for innovation
The competition between traditional banks and finechs has intensified as the financial industry continues to evolve. Banks have dominated the financial sector for centuries, but fintechs have emerged as significant challengers, particularly in recent years. This section will explore the factors that make banks and fintechs competitors.
One of the banks’ most significant advantages over fintechs is their reputation for trust and stability. Banks are backed by governments and are subject to strict regulations, which helps build customer trust. They have established brands and a long-standing history of providing financial services. Customers are often reluctant to switch to new and untested finechs, particularly for significant financial transactions.
However, banks have a significant disadvantage regarding innovation and flexibility. They often have outdated systems and processes, making adapting to new technologies and changing customer needs difficult. In contrast, fintechs are built from the ground up with modern technology and can quickly adapt to changes in the market.
This disadvantage in innovation and flexibility is particularly evident in how banks approach digital transformation. Many traditional banks have been slow to adopt new technologies and have instead relied on their existing systems and processes. This reluctance to adapt has opened up opportunities for fintechs to offer solutions that cater to the needs of modern customers.
The emergence of digital banks like Revolut and Monzo has significantly challenged traditional banks. They offer modern services such as instant payments, budgeting tools, and cryptocurrency trading. They also appeal to younger customers who value convenience and technology over tradition and stability, boosting their increase in popularity.
In response to the competition from fintechs, traditional banks have started to invest heavily in digital transformation. They have begun to develop their digital platforms and offer innovative solutions to their customers. However, the competition from fintechs continues to be intense, and it is unlikely that traditional banks will be able to match their innovation and flexibility in the short term.
In short, banks and fintechs are considered competitors in the financial industry. Banks have the advantage of trust and stability but are disadvantaged in innovation and flexibility. fintechs have emerged as significant challengers to traditional banks, particularly in recent years, offering solutions that cater to the needs of modern customers. However, there are also opportunities for collaboration between banks and fintechs, which we will explore in the next section.
Collaborating to innovate
Despite the competition between banks and fintechs, there are also many opportunities for collaboration. Banks and fintechs have complementary strengths, and by working together, they can create mutually beneficial partnerships.
One advantage of collaboration is that it allows banks to leverage the innovative technology of fintechs. Through partnering with fintechs, banks can offer their customers new services without building the technology themselves. This can help banks to stay competitive in an increasingly digital world.
Likewise, fintechs can benefit from working with banks. Banks have large customer bases and established brands, which can help fintechs gain exposure and build customer trust. Banks also have a wealth of experience and expertise in the financial industry, which can be valuable for fintechs navigating complex regulatory environments.
The potential for collaboration between banks and fintechs is vast. We are already seeing the emergence of “BankTechs” – companies that combine the best of both worlds to offer innovative financial services.
For example, Holm, the Estonian bank, has extensive experience narrowing the gap between traditional banking and fintechs. Being one of the Baltic’s most technologically advanced banks, the company understands the importance of rapid growth through collaborations and partnerships. In line with this approach, Holm has teamed up with Wallester, an Estonian fintech specializing in revolutionary embedded finance solutions, to offer its clients the most technologically advanced payment cards in the modern market.
Through the collaboration with Wallester, Holm gained the ability to issue virtual and virtual disposable cards. These cards allow customers to view their PIN code through the app, freeze/unfreeze cards in real-time, and other capabilities previously unavailable for traditional banking institutions.
Wallester has also partnered with one of the leading Latvian banks, LPB, to safeguard its clients’ funds through an established and reputable player in the global finance field. This partnership reinforces trust in the eyes of the customers, which would be significantly harder to achieve for a fintech company without any connection to the traditional banking system.
Another example of an effective partnership is ABN AMRO, one of the largest banks in the Netherlands, which has partnered with an advanced subscription management service, Subaio. Together, they offer an innovative solution to recurring payments for clientele, expanding the traditional banking service scope with technological capabilities only a smaller technology-first company could provide.
While retail finance may be the most common area for collaboration between banks and fintech companies, other areas of the banking industry can also benefit from such partnerships. A recent example is HSBC’s partnership with Tradeshift, a global company focused on supply chain finance. As per the agreement, HSBC will utilize Tradeshift’s platform to automate supplier invoice payments, providing faster and more transparent payment cycles.
Nevertheless, a collaboration between banks and fintechs does not come without challenges. One major challenge is the differences in culture and ways of working. Banks are often large, hierarchical organizations with slow decision-making processes, while fintechs are smaller, agile companies that can move quickly and experiment with new ideas. This can create tension in collaborations between banks and fintechs, with each party struggling to adapt to the other’s way of working.
Another challenge is the differences in regulatory environments. Banks are subject to strict regulations and oversight, while fintechs often operate in a more ambiguous regulatory space. This can create uncertainty and risk for banks when partnering with fintechs, as they may be held responsible for any regulatory breaches or compliance issues.
Despite these challenges, the potential benefits of collaboration between banks and fintechs are significant. By working together, they can leverage their respective strengths to create innovative financial products and services that benefit both customers and the financial industry as a whole.
A complex but rewarding relationship
Overall, the relationship between banks and fintechs is complex and multifaceted. While there are clear arguments for both competition and collaboration, it is clear that the two sides have much to gain by working together.
On the one hand, banks have an advantage in terms of trust and stability but often lag behind fintechs in terms of innovation and flexibility. Fintechs, on the other hand, have the advantage of being built from the ground up with modern technology but often lack the trust and regulatory backing that traditional banks enjoy. However, by leveraging their strengths, banks and fintechs can create mutually beneficial partnerships that drive progress and deliver better services to their clients.
The financial industry is in a state of rapid evolution, driven by changing consumer expectations and advancements in technology. As such, it is likely that we will see more collaboration between banks and fintchs in the years to come. Both sides have much to gain by working together, and there are already many successful examples of cooperation, such as the aforementioned partnership between Holm and Wallester or ABN AMRO’s partnership with Subaio.
Ultimately, the competition between banks and fintechs is healthy, forcing both sides to stay on top of their game. However, it is clear that collaboration offers significant advantages, and we can expect to see more partnerships between banks and fintechs in the future. By embracing collaboration, banks and fintechs can work together to create a financial industry that is more innovative, customer-focused, and resilient.
