FinTechs Deserve a Seat at the Table: How True Collaboration Can Revolutionise Finance!
By Karthik Jagannathan, Head of Payments Advisory at Intix
When was the first time you read an article about the need for FinTechs and financial institutions to collaborate more effectively? Was it two years ago or three? Maybe longer?
I’m sure if we traipsed back to the earliest days of the FinTech movement, we would likely find this sentiment expressed in think pieces of the time. So, why, after all these years, do we still find ourselves in a position where that question is still so relevant?
Despite the countless words dedicated to the issue and the numerous projects launched to address it, there remains an underlying sense that FinTechs and financial institutions still view each other as adversaries rather than complementary forces with the potential to achieve more together than they can alone. It is long overdue, but right now, there is an opportunity to resolve this divide, especially in the face of new demands impacting both sectors.
Respect the Innovators
Let me start by saying that both sides have contributed to the challenges we face today. Throughout my career, I’ve seen first-hand the issues affecting both parties. If we are to achieve the change we want to see, everyone must evolve. However, I believe a more significant shift is required from financial institutions and regulators, many of which continue to treat FinTech companies as the ‘juniors’ in partnerships.
This perception may have made sense at one point, but in 2024, when countless FinTech companies are as integrated into our daily financial lives as some of the largest traditional players, it needs to change. Despite being at the forefront of developing user-facing financial solutions that are propelling the wider financial sector forward, FinTechs are still often overlooked or underappreciated in partnerships.
Partnering for Success
This is particularly relevant when considering large-scale EU-backed initiatives such as PSD3, the Instant Payments Regulations, and the Digital Euro programme. The ambition behind these projects is impressive, and they have the potential to transform how we interact with financial services daily. However, their impact will be significantly diminished if we cannot foster robust and equitable partnerships between the parties responsible for implementing them.
Crucially, this is not a zero-sum game. Providing FinTech businesses with a more equitable role in this process does not mean financial institutions will be sidelined. These institutions, which continue to manage the complex operations necessary to bring these innovations to life, deserve to play a significant part in implementation plans. However, the era of financial institutions wholly dominating these processes is becoming increasingly untenable.
So why should financial institutions open the door further to collaboration with FinTechs? What’s the incentive? The answer lies in how FinTechs can assist banks in the very areas they may feel pressured to innovate. FinTechs have already proven their ability to improve customer acquisition, streamline digital onboarding journeys and revolutionise KYC processes – key areas that banks often feel the strain. By leveraging FinTech expertise, banks can enhance the quality of their services, better meet regulatory demands, and, most importantly – offer a more seamless and secure experience to their customers. In short, collaboration enables banks to remain competitive in the rapidly evolving market.
Working to Improve Working Groups
Looking ahead, what needs to happen to unlock a new era of collaboration within the wider financial sector? Let’s start with working group committees, which are often the ‘battlegrounds’ where implementation strategies for initiatives, such as those mentioned earlier, are determined. Even today, FinTech businesses are often brought into these committees late in the process, limiting their ability to shape discussions and influence outcomes.
This approach is clearly suboptimal. When FinTech businesses find themselves on the outside looking in, they are less likely to be fully invested in helping these initiatives achieve the impact their proponents desire. Moreover, it perpetuates the ‘us vs them’ mentality that has hindered efforts for greater collaboration in the past. Given the reasons outlined in this article, there’s simply no justification for its continued existence in 2024.
It’s Time to Commit to Change
If we are genuinely committed to achieving the best outcomes for all parties, especially the end users of these systems, equitable participation must be prioritised from the outset. In my view, involving FinTechs in these discussions at an earlier stage and granting them greater influence will allow traditional financial institutions to appreciate their unique value better, paving the way for more effective collaboration.
This should, in turn, help foster new approaches to other challenges hindering collaboration. For instance, developing improved revenue-sharing models that ensure FinTechs and traditional institutions benefit more equitably from joint initiatives is also essential. By pursuing these goals, we can cultivate an industry built on mutual respect, leading to a more inclusive, efficient, and dynamic financial ecosystem.
Unlocking Collaboration in a Moment of Need
Ultimately, FinTech companies and traditional financial institutions must finally commit to doing more to ensure they collaborate as effectively as possible. Shifts in attitude are needed from both sides; action from only one party will not suffice. Fortunately, with several large-scale initiatives on the horizon, this timely change may soon become unavoidable. If it does finally happen, then that will benefit us all.
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November 14, 2024
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