I recently took part in the Big Tech and Big Banks: Coopetition panel, as part of Fintech Week London, alongside panellists from Microsoft, 10x Future Technologies and HSBC. We explored the changing attitudes towards both corporate partners and competitors that we’ve seen emerge over the past two decades. Consumers’ relationships with their banks have changed, and traditional financial institutions have had to similarly evolve, or risk losing market share to newer market entrants.
At a time of unprecedented change for our industry, the lines between ‘competitor’ and ‘collaborator’ are becoming increasingly blurred, and the definition of what it truly means to be a ‘partner’ in today’s ecosystem has evolved. Now, established and emergent brands are starting to see the benefits of a ‘coopetition’ based model, in which services and platforms are shared interchangeably for the greater good of the consumer. Fintech has and always will be pioneered by open and mutually beneficial relationships between service providers, and it will be vital for banks to embrace this change if they’re to survive in the digital-native future.
The changing tides of attitudes
There’s no doubt that we’ve seen a stark change in mentality towards corporate partnerships over recent years. Gone are the days in which a consumer only banks with one player, depositing their salary, managing their day-to-day finances and even taking out loans with the same institution. Customers have access to an unprecedented choice of financial services and providers, and incumbents have had to evolve their technology – and their processes – in order to keep up.
Initially, this involved outsourcing elements of their technology stack in a very traditional sense; the chosen vendor would supply a dedicated piece of software to solve a specific problem, or unlock a particular service, and the relationship with the incumbent would be left at that. What we’ve seen in recent years, however, is a step-change in banks’ attitudes towards partnerships and the vocabulary that goes alongside them. Our customers are no longer looking for ‘one and done’ software solutions.
Rather, they’re seeking to create long-term partnerships with specialist providers who have established their credentials in a particular area of payments or fintech and leverage this relationship over time to create bespoke solutions that meet their needs. With financial services evolving so rapidly, traditional players no longer know what their product roadmap will look like in two years, and as such are strategically garnering the right support from trusted players to go on this journey with them.
The challenger bank question
It’s impossible to discuss the future of partnerships in fintech without touching upon the challenger bank revolution, which was spearheaded by the very brands that popularised this more open approach to collaboration between financial services providers in the first instance. Global Processing Services helped to power the initial wave of neo-banks that we’ve seen rise to prominence over the last decade, allowing household names such as Starling Bank and Revolut to outsource their issuing capabilities to focus on what challengers can do best; digital financial solutions, user experience and customer service.
It’s clear, however, that incumbents are learning from the lessons of the first wave challengers; through our API integrations, neo-banks were able to offer innovative features such as remote card freezing, spending blocks for sensitive merchants such as gambling, and real-time money management notifications. The fact that we’re now seeing these features emerge in high street and retail banks’ mobile apps is a testament to their willingness to outsource, adapt and ultimately improve their offerings.
Big banks meet big tech
Partnerships between traditional banks and big tech companies are the next logical step on this journey. Having seen first-hand the benefits of opening up their services and technology stacks to trusted third-party providers, incumbents are turning their attention to other big names in the tech space with an eye on further growth and expansion.
The recent collaboration between Morgan Stanley and Microsoft is just one example of this. In June this year the two firms announced a collaboration that would help accelerate Morgan Stanley’s digital transformation, with a particular focus on Microsoft’s expertise in cloud technology, a crucial area of development for financial services. Similarly, Deutsche Bank recently enlisted the services of Google to further innovate its cloud-based offering, in a bid to deliver more robust financial services, and bring new platforms to market quicker. These mutually beneficial relationships go beyond the typical customer-vendor relationship; banks are benefitting from access to big tech’s cloud native capabilities, as well as their inherent brand recognition and loyalty. Big tech firms, on the other hand, are exploring new business models and opportunities for revenue generation in the lucrative fintech space.
Regulation – fintech friend or foe?
The responsibility of traditional banks to both their customers and the wider economy cannot be understated; incumbents are, in many ways, custodians of their customers’ most confidential financial data, and as a result, any innovation or product development must be measured and balanced with stringent security measures.
Regulators, too, play a crucial part in protecting the interests of the consumer, ensuring financial fair play and working towards a balanced ecosystem with plenty of options available. From banks and fintechs’ perspectives, however, regulators have long been perceived as barriers to growth and innovation. For financial services’ providers looking to scale internationally, working around individual jurisdiction-by-jurisdiction nuances in regulation is one of the single biggest hurdles to overcome, and requires working with global partners – such as Global Processing Services – to leverage their cross-border experience.
Rethinking their relationships with regulators, however, could allow banks and fintechs to drive further, quicker innovation in their respective spaces. Modern regulation in fintech has changed; it’s no longer just a 'check-list’ exercise to make sure your app or platform has the right checks and balances in place, though these are important. Instead, regulators are increasingly interested in the processes behind product development and, in many instances, are seeking ways to foster innovation rather than hamper it. By treating regulators as they would their commercial partners, that is to say by engaging in transparent and meaningful conversations with them, fintechs and incumbents alike can actually leverage these relationships to promote growth instead of slowing it down. This will likely come in the form of better access to funding and education, as well as the increased use of progressive regulatory processes, such as financial sandboxes.
The trusted global partner
Having been at the heart of fintech for the past decade, Global Processing Services has long been a strong advocate of the power of partnerships between banks, fintechs and regulators. Our ability to understand where the strengths of our partners complement our own market-leading solutions have allowed us to help a wide range of tier 1 banks, challengers and start-ups on their own fintech journeys. We recently partnered with cross-border payments specialist, Currencycloud, to deliver a full stack mobile FX platform, designed to facilitate greater access to the innovative currency exchange solutions that the post-COVID consumer demands.
As increasingly digital-savvy customers come to demand more from their financial services, it’s becoming abundantly clear that partnerships are the path to prosperity. Whether this means incumbent banks leveraging fintechs in an embedded finance model, leaning into the specialities of big tech, or even collaborating more closely with regulators, businesses who choose the right partners to support them on their long-term growth journey will see the biggest successes.