Banks and FinTechs: Friends or Foes?

April 15 , 2021

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In a year defined by digital transformation at breakneck speeds due to the pandemic, traditional banks continue to face a number of threats as new technology enables other players to rise to the top. 

The biggest disruptor? Big Tech. 

Companies like Amazon and Google have made tremendous strides with innovation in the past decade, disrupting a wide range of verticals along the way. Although Big Tech has been and continues to remain a competitive threat, for the first time in a while financial institutions who view it as a threat are decreasing. Since 2020, that percentage has dropped 12%. Why? Where previously there might have been competition, many are now starting to see opportunity in partnering with Big Tech companies.

Graphics_041321-02

Source: What’s Going On In Banking 2021 Report

Data shows that nearly 50% of surveyed financial institutions expressed interest in partnering with Amazon if the technology firm opened its doors for them to lend to Amazon merchants. This reframing from competitor to partner reverberated throughout financial services with the emergence of embedded finance (Banking-as-a Service) in 2020. 

With this shift, non-traditional financial players entered into the banking space on terms amenable to those already in the ecosystem. We saw the growth of deposit account partnerships between Big Tech players and financial institutions (i.e. GooglePlex, Stripe Treasury, Amazon and Marcus) and we can predict that the partnership model between financial institutions and Big Tech players will continue to scale moving forward as it is mutually beneficial for both parties

In many cases, financial institutions lack the depth of consumer data and reach that Big Tech players possess. Partnerships enable these institutions to expand beyond their existing consumer base and better optimize their balance sheets. Big Tech can better service the needs of their customers by offering financial products and improving customer lifetime value and stickiness, without having to massively scale up their financial infrastructure or compliance programs.

The real threat to banks

While the perception of Big Tech as the competition seems to be on the decrease as banks learn they can coexist, other significant threats are on the rise – and they show no signs of slowing. 

Jamie Dimon, the CEO of JP Morgan Chase, made waves saying financial institutions should be ‘scared shitless’ of the competition posed by FinTechs – citing PayPal, Square, Stripe, and Ant amongst others as emerging threats to banks. Data suggests that Dimon isn’t alone in this sentiment. 

More and more financial institutions are coming to terms with the fact that FinTech players and challenger banks are significant competitors (a 7% and 14% YoY increase respectively). In just the last few months, we have seen Venmo launch a credit card, Affirm launch debit cards, and Varo Money obtain a bank charter. FinTechs and challenger banks are starting to look more and more like banks, expanding beyond their initial slice of the banking stack and taking on more. 

This rebundling of financial services poses a threat to traditional banks as competitors seek to land and expand to compete for an increasing share of the consumer’s wallet. Financial institutions will come under increased pressure to provide digital solutions that are both simple and fast, as customers demand better and more personalized experiences that are offered by FinTechs and in industries outside of banking.

Graphics_041321-01

Source: What’s Going On In Banking 2021 Report

Financial institutions that have partnered with FinTechs have found varying levels of success thus far. In a study conducted by Cornerstone Advisors on the outlook for banks in 2021, research found that 48% of banks and 42% of the credit unions surveyed have partnered with a FinTech over the past three years. In the lending space, the bulk of these relationships have only been modestly productive. Less than 15% of banks have seen greater than a 5% increase in loan productivity or more than a 5% reduction in fraud losses. 


The reality is that while banks have partnered with FinTechs, many haven’t invested enough in these programs to see results. A quarter of banks surveyed have zero personnel dedicated to FinTech programs. Acquiring the technology from a FinTech and setting and forgetting without any additional investment has proven that it isn’t a winning model. Banks need to seek partnership-driven relationships with their vendors and devote adequate personnel to grow and expand these partnerships post-launch if they want success.

What does this mean for financial institutions

While specific FinTech models like Stripe and PayPal will remain a threat to the traditional banking industry, FinTech partnerships present a massive opportunity for incumbent banks. Holding modern and agile platforms capabilities, partnerships with these FinTechs will effectively empower financial institutions to stay on the cutting edge of the financial services industry. 

Financial institutions are realizing that they need the ability to launch digitally native products with the speed and agility of a tech company in order to compete against FinTechs unencumbered by outdated tech or legacy cores.Their priorities are clear.

Graphics_041321-03

Source: What’s Going On In Banking 2021 Report

Finding the right partner and investing in new technology––and an ongoing FinTech program––is crucial for financial institutions to succeed. Amount’s core platform and product suites provide traditional financial institutions with the technology they need to compete against emerging players – all with the speed and agility of rising FinTech competitors.

Amount integrates into a bank’s existing system giving them access to our digital infrastructure, providing the foundation to lend digitally and scale rapidly. Our fraud, risk, and credit capabilities––among many others––are purpose-built to accommodate the world’s leading banks. 

Discover how a partnership with Amount can revolutionize your business.

LEARN MORE

Footnotes

The information in this post is provided for informational and advertising purposes only. Amount's service may vary for each customer. For more information, email us – media@amount.com.

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Jordan Wahl

Jordan combines a distinct mix of creative and analytical acumen to her marketing playbook. Prior to joining Amount as the Marketing Manager, Jordan played a key role in scaling the content and SEO strategy at one of Chicago’s top tech startups. In her free time you can find her hiking, cooking, painting or putting together her latest seasonal playlist.

Banks and FinTechs: Friends or Foes?

Posted by Jordan Wahl on April 15 , 2021
Jordan Wahl
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Banks and FinTechs: Friend or Foe?

In a year defined by digital transformation at breakneck speeds due to the pandemic, traditional banks continue to face a number of threats as new technology enables other players to rise to the top.

The biggest disruptor? Big Tech.

Companies like Amazon and Google have made tremendous strides with innovation in the past decade, disrupting a wide range of verticals along the way. Although Big Tech has been and continues to remain a competitive threat, for the first time in a while financial institutions who view it as a threat are decreasing. Since 2020, that percentage has dropped 12%. Why? Where previously there might have been competition, many are now starting to see opportunity in partnering with Big Tech companies.

Source: What’s Going On In Banking 2021 Report

Data shows that nearly 50% of surveyed financial institutions expressed interest in partnering with Amazon if the technology firm opened its doors for them to lend to Amazon merchants. This reframing from competitor to partner reverberated throughout financial services with the emergence of embedded finance (Banking-as-a Service) in 2020.

With this shift, non-traditional financial players entered into the banking space on terms amenable to those already in the ecosystem. We saw the growth of deposit account partnerships between Big Tech players and financial institutions (i.e. GooglePlex, Stripe Treasury, Amazon and Marcus) and we can predict that the partnership model between financial institutions and Big Tech players will continue to scale moving forward as it is mutually beneficial for both parties.

In many cases, financial institutions lack the depth of consumer data and reach that Big Tech players possess. Partnerships enable these institutions to expand beyond their existing consumer base and better optimize their balance sheets. Big Tech can better service the needs of their customers by offering financial products and improving customer lifetime value and stickiness, without having to massively scale up their financial infrastructure or compliance programs.

The real threat to banks

While the perception of Big Tech as the competition seems to be on the decrease as banks learn they can coexist, other significant threats are on the rise – and they show no signs of slowing.

Jamie Dimon, the CEO of JP Morgan Chase, made waves saying financial institutions should be ‘scared shitless’ of the competition posed by FinTechs – citing PayPal, Square, Stripe, and Ant amongst others as emerging threats to banks. Data suggests that Dimon isn’t alone in this sentiment.

More and more financial institutions are coming to terms with the fact that FinTech players and challenger banks are significant competitors (a 7% and 14% YoY increase respectively). In just the last few months, we have seen Venmo launch a credit card, Affirm launch debit cards, and Varo Money obtain a bank charter. FinTechs and challenger banks are starting to look more and more like banks, expanding beyond their initial slice of the banking stack and taking on more.

This rebundling of financial services poses a threat to traditional banks as competitors seek to land and expand to compete for an increasing share of the consumer’s wallet. Financial institutions will come under increased pressure to provide digital solutions that are both simple and fast, as customers demand better and more personalized experiences that are offered by FinTechs and in industries outside of banking.

Source: What’s Going On In Banking 2021 Report

Financial institutions that have partnered with FinTechs have found varying levels of success thus far. In a study conducted by Cornerstone Advisors on the outlook for banks in 2021, research found that 48% of banks and 42% of the credit unions surveyed have partnered with a FinTech over the past three years. In the lending space, the bulk of these relationships have only been modestly productive. Less than 15% of banks have seen greater than a 5% increase in loan productivity or more than a 5% reduction in fraud losses.

The reality is that while banks have partnered with FinTechs, many haven’t invested enough in these programs to see results. A quarter of banks surveyed have zero personnel dedicated to FinTech programs. Acquiring the technology from a FinTech and setting and forgetting without any additional investment has proven that it isn’t a winning model. Banks need to seek partnership-driven relationships with their vendors and devote adequate personnel to grow and expand these partnerships post-launch if they want success.

What does this mean for financial institutions

While specific FinTech models like Stripe and PayPal will remain a threat to the traditional banking industry, FinTech partnerships present a massive opportunity for incumbent banks. Holding modern and agile platforms capabilities, partnerships with these FinTechs will effectively empower financial institutions to stay on the cutting edge of the financial services industry.

Financial institutions are realizing that they need the ability to launch digitally native products with the speed and agility of a tech company in order to compete against FinTechs unencumbered by outdated tech or legacy cores.Their priorities are clear.

Source: What’s Going On In Banking 2021 Report

Finding the right partner and investing in new technology––and an ongoing FinTech program––is crucial for financial institutions to succeed. Amount’s core platform and product suites provide traditional financial institutions with the technology they need to compete against emerging players – all with the speed and agility of rising FinTech competitors.

Amount integrates into a bank’s existing system giving them access to our digital infrastructure, providing the foundation to lend digitally and scale rapidly. Our fraud, risk, and credit capabilities––among many others––are purpose-built to accommodate the world’s leading banks.

Discover how a partnership with Amount can revolutionize your business.

LEARN MORE

Topics: Insight