Wise, one of Europe's largest fintechs, explains how banks and fintechs can create a mutually beneficial and successful partnership.
The views and opinions expressed in this article are those of the author.
London is a strange city.
It can feel vast, unconquerable. A place dominated by Big Ben, St Paul’s Cathedral, the giant M&M store - huge landmarks you can’t help but feel intimidated by. But spend some time here and you realise what it really is: A patchwork of places and communities, each their own.
Hackney is home to the fixed gear bikers, Clapham home to Australians and the Big Four grad-schemers. This analogy extends to businesses - Holborn, lawyers and Bermondsey, brewers.
Separated by little more than some corner shops, a vape store and a few bad pubs, sit Shoreditch and the City of London. Shoreditch is the land of the fintechs and the City home to big banks and financial institutions.
However this separation is changing. Once, banks and fintechs used to only meet as competitors, now they work together.
Creating partnerships by leveraging strengths
Banks, facing an increasingly competitive landscape, are partnering with fintechs to provide specialist services that exist outside their core offerings. Fintechs, in turn, gain from banks’ scale and the ability to work together to make new products and services.
For instance, at Wise we specialise in international money transfers. This does not sit within the core offering of most banks, since they tend to focus on domestic banking - their international transfer services are often not a priority.
So, banks are partnering with us to provide the service.
How can fintechs approach banks?
The line between Shoreditch and the City might be blurring. Fintech staffers can be found in suits and bankers in trainers, but some differences still remain which can make partnerships challenging.
For a start, fintechs need to be pragmatic, especially those that aren’t highly regulated. Banks operate in a tightly regulated space with lots of safeguards. Inevitably, fintechs working with them will face painful processes, various risk assessments and many questions.
This is not an easy process, but it’s to be expected. Getting frustrated with the process achieves very little, nor does assuming that all processes are just ‘banks being banks’.
If you’re a fintech and want to work with a bank, prepare for questions, processes, questions, processes, a few requirements, then finally, some more questions and processes.
But equally, that doesn’t mean all this can’t change. Regulatory requirements can often be met more efficiently than the status quo allows.
Horror stories abound about emerging fintechs being given contracts that rival Ulysses in length - that may be fine for a bank, but it can tie up a small fintech’s legal team for months.
How can banks improve the process for fintechs?
Thankfully, some banks are improving things.
Barclays, for instance, aims to give some fintechs access to a partnership in just five days. All banks should do what they can to streamline processes and find efficient ways to meet regulatory requirements.
Banks also need to consider what a partnership truly means. If they’re looking for a ‘standard’ service provider, to deliver a very standard solution, that's okay. These solutions can go through procurement the normal way. It's box ticking protocols and obsession with standardisation.
That’s one type of relationship - but it’s not necessarily a partnership.
If banks want to deliver something unique, something innovative, they should look for a partnership.
But that means working together, exploring options, being open - sharing pain points, successes and goals.
It should not involve rigid procurement processes, which deny banks the benefits of fintechs’ flexibility and their ability to create the best solutions for customer problems.
Ready-made, cut-and-paste solutions may not exist for some problems but new solutions can be formed in a partnership if both sides are clear about their problems and needs.
Having a shared goal and purpose
And there needs to be honesty.
Fintechs need to be honest about the stage they’re at, the capabilities they have and the capabilities they plan to build. Over-hyping credentials only leads to problems later.
Banks, meanwhile, need to be clear about their stage of readiness - whether they have a project with an approved budget, or whether they’re just exploring options. Without this clarity, fintechs risk dropping everything to work on a deal, only to find out that any potential work is three years away.
Perhaps the most important thing is for banks and fintechs to have a shared goal. Banks can’t just partner with a fintech because it’s the ‘in’ thing.
Fintechs can’t just partner with banks because they want a quick route to scale. The partnership has to make sense for customers and improve the overall experience.
By working together, can a bank and fintech create something new, something unexpected? Can they deliver a service in a unique way? And can they do it in a way that’s convenient and easy for customers?
If the answer is yes, and there’s a clear purpose to the work, then it can work. It can’t just be a marriage of seeming convenience.
Accepting and appreciating differences
A shared purpose can cut through even the most aching cultural differences, yanking together people’s focus and attention. Without a purpose, small misunderstandings and niggles can grow, irritate and eventually make both sides question why they’re going through this whole thing together.
Banks and fintechs are never going to be the same, no matter how much the line between Shoreditch and The City muddies. And that’s okay.
The differences are important, they’re what make partnerships strong, with both sides bringing different perspectives and strengths.
By working together fintechs and banks can make finance better.
- Steve Naudé is head of product at Wise Platform.