Why Is It Hard for Banks and Fintechs to Cooperate?
Updated: Feb 18, 2019
Tomas, the co-founder of The Booster Labs, was invited to join panel discussion during the Fintech Summit 2018 which took place in Bratislava along with Ondrej Knot, CEO of Dateio and Gabor Fodor Papp, co-founder at Family Finances. Both Dateio and Family Finances are fintechs that actively cooperate with banks as part of their operating model and this cooperation is crucial for their success. The panellists talked about the role that fintechs play in the innovation and research capability of traditional retail banks. We bring you the answers Tomas gave to the most burning questions that are nowadays on the table.
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Why Do You Think Banks Are Not Able to Innovate as Fast as Fintechs Do?
People in banks are not any less capable than people working in startups. But banks are facing a multifaceted problem - politics, organization's size, risk awareness culture, strict regulatory oversight and compliance, lacking IT capacity and legacy systems all come into play.
This perfect storm of issues typically translates into very slow innovation and product development cycles further decelerated by complex corporate decision making. It sometimes literally takes 2 years to go from an idea to even a simple customer product.
Bankers on the executive level should honestly think about how they understand innovation and their true motives for running innovation initiatives - whether they want to play an innovation theatre or are willing to spend and lose money on experiments which will by definition fail often. This takes a significant shift in thinking on the C-level in traditional banks.
Every Banker Now Talks About Fintechs, Why Do You Think Is That?
We have had small companies and banks coexisting for a long time. Now we just call those small companies startups. However, what has fundamentally changed in the past 10 years or so is the nature of business these small companies are doing.
In the past small companies acted mostly as vendors for banks providing them with an internal technology product. Nowadays, a new breed of company - a fintech startup - provides a solution which is customer facing - it owns the customer relationship and is no longer just a provider of vendor-type services.
They now compete for the same customer. This is a really big topic for the banks to figure out if and how they want to interact with fintechs. Is it on developing common value propositions or cooperating on marketing level or co-branding of their products? In a way, this reverts back to thinking strategically what will be the future core business of today’s retail banks.
What Do You See as the Biggest Issue when It Comes to a Bank-Fintech Cooperation?
Banks will need to stop thinking of fintechs as vendors and not abandon fixed price/fixed scope thinking during the procurement process that usually takes several months to complete.
It is impossible for a small company to put 8 months of their limited resources and limited runway into a project with an uncertain outcome. At the same time, fintech's product is changing rapidly almost every few weeks - the engagement model with banking partners must reflect this.
What banks need to realise is that for them cooperation with a fintech is often just one of the dozens of projects in the pipeline but for the fintech it is on the top of the priority list. For the startups it is often make it or break it situation while for the banks it is just another procurement.
What Do You Think Will Be the Role of the Banks in the Mid-term?
Banks are important and they are here to stay. A couple of years back there was this hype that banks will be disrupted to oblivion by fintechs which is clearly not the case. Banks posses a big momentum through their huge distribution capabilities and own customer relationship on a massive scale, which are a key factors. The question is what is going to happen in the mid-term horizon of 10-15 years from now in European banking.
One of the emerging models which I think shows a lot of promise is being pioneered by solarisBank. Solaris is building bank platform (regulation, compliance and tech included) with APIs and full German banking license which can be passported within EU. Startups can essentially purchase access to issuing banking products with underlying regulation bundled in as a service.
Before it would have taken a massive investment to build a full technology stack and obtain the appropriate financial license. Now you can do it with the fraction of costs in a few months.
When an entrepreneur identifies a customer issue in financial services worth solving it can be build and launched within one year. The only thing I see as an issue is a distribution and that's exactly space where you can and need to partner with a bank.
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