The partnership between banks and fintech companies has been around for a while. Banks have physical reach through their strong network, a stronghold on their customers and their trust, and a brand image. On the other hand, fintech startups have the technology to digitize banks’ systems and provide intelligent and flexible banking to customers. The arrangement is profitable for both.
Previously, all the things were handled by banks, but now fintech firms are almost used for everything. Not all fintech companies are challengers to banks. However, they have become facilitators more like tech partners. Moreover, both aim to provide the best facilities to their customers. There are many reasons why banks should partner up with fintech firms. We will articulate five of these reasons in this article.
Technology at Less Cost:
Whether to buy or develop their technology, this question consumes the valuable time of banks that they cannot justify over the coming years. Many banks spend years brainstorming ideas about fintech and technology. As a result, customers are unable to receive proper service.
The time that bank employees spent brainstorming and learning new technology could have been used for implementing the technology much faster and at a low cost by collaborating with a fintech firm. Moreover, licensing technology is a better option than developing a new one, as it consumes a lot of funds and is also easy to replace when it fails.
It is easy for the bank procurement department to favor contracts that have been drawn previously and approved internally by the bank management. On becoming a partner with a fintech firm, the approval time for technology will reduce.
Furthermore, when a bank partners with a fintech firm, it also gets access to its cloud services. This means that the bank will receive cybersecurity, uptime performance, data storage, and residency from its partnered fintech firm. It can reduce the burden on the procurement department.
By partnering with a fintech company that offers cloud-based AI service, a bank can do contextual recommendations and sell offers through mobile in real-time. The question is how a fintech firm meets the regulatory requirements of a country where their client or customers operate.
Without knowing the regulatory laws, there can be breaches in regulation by the partner firm. However, this should not be a deal-breaker for the partnership between banks and fintech firms. As of today, many fintech companies are working with central banks and regulators, trying to create new technologies that work in compliance with regulatory laws.
Most banks use old technology, meaning there will always be a technology gap. Therefore, banks need to collaborate with fintech firms. Fintech firms are advanced tech firms that keep themselves updated with new technology and are free from legacy technology.
As a consequence, these firms can create customer-centered services and can cause a threat to the bank’s status. No matter what banks do, they cannot meet the technology of fintech firms. In the end, banks must partner with fintech firms to keep themselves updated with current technology.
The return on investment perspective of banks for fintech projects is pretty short. Commonly, the payback period is 18-24 months. In most cases, this is the reason behind the dispute with new partner technologies.
The short-term ROI focus can fail collaboration even before they start. However, it does not mean that banks should write off investments. Simply put, there should be a metric system to measure ROI that is softer than typical IT projects. It will help companies to form long-term partnerships with banks.
The partnership of banks with fintech companies is integral. As banks lack new technology and are stuck with legacy technology, they cannot provide the best services to their customers. However, fintech companies do not have a large pool of customers as banks have. So, when they partner up, they are in a win-win situation.
There are plenty of reasons why banks should partner up with fintech firms. Tell us your thoughts in the comments, and make sure to give us a like. Ciao!!!