Fintechs, banks – competitors or allies?

Throw the term fintech into a conversation and it is not long before someone references PayPal, Venmo or Monzo, all once humble attempts to replace subpar banking services.

We can thank them for drafting a simplistic narrative that stuck. You’ve heard it: sluggish, traditional bank versus agile, antagonistic startup in a fight to the death.

In Luxembourg and beyond, partnerships between the two show a different reality, one where progress feeds on collaboration, not competition — or rather, one where a bank’s competitiveness hinges on its ability to collaborate.

Last month, PWC’s study, Redrawing the Lines, revealed that 82% of incumbent financial institutions plan to increase the number of their fintech partnerships within the next three to five years. Whether or not they follow through is another story.
Pairing fintech, financial institutions

According to the Luxembourg Open Innovation Club (LOIC), a joint venture between Nyuko, lux future lab, Luxinnovation and Technoport, companies are interested in developing fintech relationships, but still need guidance.

When it comes to startup-company dating, monogamy is not the answer. It’s a game of odds that can deter banks.

On the brink of its one year anniversary, the LOIC wants to see them begin committing to multiple startups at a time: “The way it works is they need to have 10 startups in order to have one or two that make a very big difference,” said Martin Guérin, CEO of Nyuko. “It’s not only about partnering. We help members optimize their relationships with startups.”

Major organisations are exploring how to facilitate these connections too. Deloitte has Bridge, BNP Paribas has Innov&Connect, and, this month, KPMG acquired Matchi, a matchmaking platform that pairs fintechs and financial institutions.

From timeframes to terminology, the two sides face a divide that these initiatives work to traverse.

Companies increasingly fish the startup pool for quick solutions. Take the case of Daimler AG and PayCash, a young, Luxembourg-based e-payment provider. Instead of embarking on the long and costly journey of developing its own tool, the multinational corporation simply made a pitching call, ultimately selecting and acquiring PayCash to handle its e-wallets.

On the flipside is CrossLend, a local startup that set out to create a peer-to-peer lending platform, an alternative for loan applicants rejected by banks due to the credit crunch.

CrossLend knew that banks had the clients, experience, data and stability it lacked, so, instead of creating a competing marketplace, it pivoted to help them become peer-to-peer capable and avoid rejecting clients in the first place.
Competition booming

It’s a fair trade: companies provide resources, infrastructure and client networks. In return, they receive an expert, external team dedicated to helping them adapt and diversify quickly.

“Today, even a tobacco shop can create a bank. Competition will be booming. Banks need to take action now,” Guérin said. “Soon, banks will be places where you will find other services. They have direct contact to consumers, so they should leverage data and eventually develop side businesses.”

Respondents to the PWC Survey agree, citing products and services, data and analytics as the largest areas of opportunity.

Future success will lean on more than chance acquisitions. Financial institutions and fintechs will team up early and often, developing solutions alongside one another in true synergy.

The BNP Paribas International Hackathon, to be held on June 9-11 in Luxembourg and abroad, gives startups the chance to develop solutions tailored to the organization’s business lines. For the winner, the competition is a fast-track to a major banking partnership.

“The unique feature of this fintech-bank partnership is its international, long-term dimension, allowing us to empower and work with hundreds of startups at a time to develop disruptive ideas around the customer experience,” said Karin Schintgen, CEO, lux future lab. “But more than that, it is a commitment to innovation that leads to real solutions within the bank.”

Banks and fintechs are inching towards, not racing against, one another. Tomorrow’s OI (open innovation) branches may be as commonplace as today’s HR departments.

With any luck, fintech cooperation will be business as usual, so much so that we’ll need to invent a new word to replace an obsolete narrative. Finbiosis? Finergy? Finship?

One step at a time.