The Evolution of Bank-FinTech Partnerships

Collaboration between banks and FinTechs is evolving, driven by the rise of digital ecosystems, regulatory changes and increasing customer adoption.

FREMONT, CA: Asian Countries have emerged as the centre of the digital revolution in the global financial space, with the highest fintech adoption rate in the world. Fast-growing smartphone penetration, affordable data, favourable structural changes, world-class digital infrastructure, and an accommodating regulatory environment have all contributed to this rise. In the face of adversity, the pandemic enhanced the development of digital payments while also placing a strain on the capabilities of new-age fintech models.

The improvement of current and potential customers' digital banking experiences remains the top strategic priority in banking transformation, which brings in an increased emphasis on quickly establishing new relationships, implementing data-driven personalised communication, and developing new digital banking products and services.

However, encouraging inclusive development in the economy will require a coordinated effort from all ecosystem players, including traditional banks, fintech, NBFCs, the government, and regulators. Fintechs have successfully penetrated the underserved and unbanked portions of society owing to cutting-edge technology, inexpensive distribution mechanisms, and ground-breaking goods. The success of fintechs relies increasingly on their ability to achieve sustainable development and profitability. Despite having established customer relationships and built trust over the years, banks are gradually reinventing themselves to meet changing consumer expectations in the new digital environment.

Collaboration between banks and fintech is necessary to develop a "win-win" model where the distinct and complementary skills of both companies are used to build ecosystems that provide seamless banking experiences to clients from all societal strata. Fintech can provide banks with modern underwriting models, and Application Programming Interfaces (APIs), and simplify transactions by allowing them to avoid the need to develop their tech stacks from scratch.

Fintechs can provide banks with consumer behavioural data at a granular level to determine customer demands and loan appetite in real-time by utilising mature engineering algorithms. Additionally, it is possible to use the digital lending models and risk engines developed by fintech to speed up the process from loan application to disbursal by a significant margin. While banks have a strong client base, access to cash, and a reputation for reliability, fintechs stand to gain from these factors.

Banks are partnering with fintech firms in a variety of ways across industries, including PoS solutions, co-branded cards, loans, and insurance products. These recent waves of partnership have reinforced the potential of collaboration as a way to increase penetration in new/existing business lines and unexplored/less explored client segments through cutting-edge products and a digitally-driven go-to-market strategy. The use of customised solutions to serve tier-3 and above markets has been made possible, thus advancing financial inclusion throughout the nation. Additionally, algorithm-driven underwriting and technological services are the favoured fields of cooperation. APIs have made it possible for banks and fintech firms to collaborate on the integration and development of novel solutions.

Embedded banking facilitates the seamless integration of financial products with fintech user apps. Through the fintech user app, it allows businesses and individuals to access bank accounts and conduct transactions. With fintech placing a high priority on the user experience, the entire banking process via the app is straightforward, thereby enhancing accessibility and engagement.

Banks need to make sure they have the proper systems and procedures in place to promote innovation. Portfolio expansion for fintech partnerships - Banks should strive to increase the number of their collaborations with fintech companies. Fintech provides banks with their tech stacks and integrates them with their core systems, enabling them to speed up development cycles by providing their efficient team and products. In contrast with traditional Banking Correspondents, fintech is more than an acquisition channel. Using better technology and enhancing user experience, Fintechs can increase efficiency, engagement, and product access.

In recent years, banks are increasingly seeking partnerships with fintechs rather than competing with them. An indication that the two businesses are becoming more interconnected and should cooperate to provide clients with better service is the name "FinBanks," which some banks have even adopted. Fintech's future is unknown, but one thing is certain: banks and fintech will work together to define the direction of financial services.

It is crucial to develop a successful cooperation model that achieves the correct balance between sustainability, innovation, and regulation to realise the full potential of fintech-bank collaboration. This will lay out a clear path for data exchange, risk management, and governance, as well as make it possible to develop streamlined go-to-market models. Most significantly, maintaining regulatory support is necessary to create a strong partnership DNA. Fintechs working with banks will be the key to reshaping the financial services industry. Collaboration between banks and Fintechs will influence the direction of finance in the future. Adopting a cooperative mindset is the best way for banks to combat competition from Fintechs. By working together with Fintechs, banks may better serve their customers, gain access to new goods and services, and remain relevant in the digital era.