Fintech is no longer all about creating disruption, and banking is no longer all about holding the line against that disruption. Now, much of the quest to remake financial services is being done in niche partnerships.
BAI spoke about how relationships between banks and fintechs are evolving with Randy Rivera, executive director of FinTEx, a Chicago-based non-profit group promoting fintech collaboration and innovation in the Midwest.
The interview has been edited for length and clarity.
BAI: Banks used to view fintechs as rivals, but in more recent years, it looks like that perspective is changing. How would you characterize the relationship now?
Randy Rivera: There’s just a lot more openness across both sides for the opportunity to work together where there’s overlapping interests and goals. COVID really pushed a lot of companies to accept digital transformation. For fintech and companies and individuals focused on disruptive innovation, it validated the business case for the need to really take a more consumer-centric approach toward creation of products and the evolution of products and solutions for customers.
How would you characterize the maturity level of the fintech space on the whole? In people terms, should we look at fintech being a fresh-faced teenager, or a striving young adult, or perhaps is it starting to slip into middle age?
I would say that we’re probably in teenage years or pre-teen, and there’s a lot of teenage angst in terms of how some of these companies are evolving and growing. And continuing with that analogy, the incumbent banks feel like parents or grandparents. What’s starting to happen is that the incumbents are realizing that they can no longer ignore these entities and this movement. I don’t want to take this analogy too far, but that’s what happens when a teenager becomes an adult – the parent and child relationship changes. In this particular case, necessity will drive the conversation in a way that I think will continue to lead to partnership.
A number of highly placed bankers have joined fintechs in recent years. How much is that contributing to the growing partnership trend?
I think it’s accelerating a lot of it for one very basic reason: Relationships matter. I think you’re going to continue to see this trend of people crossing over, and you’re going to see a cultural change at the senior levels of banking institutions. If I’m an executive and I can go in and be the head of product at a fintech for three to four years and then come back and work at banking, it’s not looked down upon anymore. This will inevitably change the dynamics of the industry, with a broader impact on banking and fintech partnerships.
Even when there’s a desire to partner, sometimes there are obstacles or integration issues. In what areas are banks and fintechs are having a hard time finding a good fit?
One of the challenges that the partnership environment will face is we really need an environment where fintechs and banks sit on the same side of the table, trying to engage regulators and the people designing the laws around financial services so that we can encourage innovation. It’s going to be a continuous challenge for the partnership dynamic because incumbents don’t have regulatory wiggle room to make mistakes and fintechs can’t experiment with large populations of customers to see if their idea works. That bridge is really tough to build.
Some banks have been very aggressive on acquisitions of fintech companies. What’s driving the acquisition trend and where do you see it going?
I think full acquisition of a fintech is going to continue when an idea has been tried and true, the executive team is strong and the platform has been validated. It’s going to occur because of the natural limitations of technology budgets – it’s a lot easier to go buy a company that’s doing well than try to build it from scratch. The question and the challenge is going to be, if you do make an acquisition of a company, will you be able to retain the benefits of that culture of that company, the way that company thinks, innovative approach and the talent which ultimately drives all of that? If you can, then you’re winning in the long run. If you can’t, it’s good for the fintechs and tough for the incumbents because a lot of money is going to be spent.
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