The skyrocketing bank-fintech partnerships have an undeniable impact on the financial market. Learn what this banking revolution can do for your business.
Bank-fintech partnerships have skyrocketed over the last few years. According to one survey, nearly two-thirds of banks and credit unions partnered with a fintech company in the past three years. And many of those that haven't entered a fintech partnership plan to do so soon.
Why are banks, known for being notoriously conservative, suddenly so keen on teaming up with private fintech companies? More importantly, what do these partnerships mean for the financial industry?
To answer these questions, let’s explore the nature of bank-fintech partnerships, the pressure driving the alliances, and how businesses can take advantage of the situation.
In the most basic sense, bank-fintech partnerships are a way for banks and fintech companies to complement each other. The bank brings its licensed depository and credit capabilities to the table, while the fintech company brings powerful — and often proprietary — technologies. However, there are many different ways banks can partner with fintech companies. The Federal Reserve groups these partnerships into three distinct types:
With a basic understanding of the kinds of partnerships banks form with fintech companies, we can begin to see the reasons for these collaborations. Here are the main motivations behind bank-fintech partnerships:
Historically, banks have viewed fintech firms as competitors in the financial market. But today, many banks have realized that fintech companies can actually help them flourish in the rapidly evolving economic landscape.
According to Gallup, Americans' confidence in US banks in 2022 stood at 27%, down six percentage points from 2021. This dwindling confidence in banks is largely due to high financing costs, low loan approval rates, and antiquated bureaucracies. Banks got away with all this for a long time thanks to their monopoly on the financial industry. But nowadays, more customer-oriented alternative banks are changing the status quo and taking large chunks of the market away from traditional banks.
Banks have no choice but to match the speed, efficiency, convenience, accessibility, and affordability of alternative online banks to survive the mounting competition pressure. They can do so in three ways. One, acquire fintech firms, like JP Morgan’s deal with OpenInvest. Two, invest in fintech startups, a common strategy among top US banks. Three, form strategic business partnerships with established or budding fintech companies, often the easiest and cheapest option.
Fintech entrepreneurs have also realized that working with banks presents many opportunities to build mutually beneficial cooperation. In such an alliance, the fintech company is covered by the bank’s licenses to trade various financial services and gains access to financial information that would otherwise be out of reach.
Even the US Treasury stands by bank-fintech partnerships. In a recent press release, US Secretary of the Treasury Janet L. Yellen said, “Innovation and competition must work hand in hand in a healthy economy.”
Banks are archaic institutions strongly set in their ways. Granted, being conservative is a safe play that avoids many risks, but it also discourages innovations. And the truth is, the financial world has been aching for innovation to do away with cumbersome processes and instead bring modern digital capabilities to banking.
There is so much potential in digitizing banking. A digital banking platform opens up the possibilities of mobile banking, crypto banking, low-cost transfers, real-time transactions, instant payments, insightful financial data analytics, and highly personalized user experiences.
Many banks now realize the untapped opportunities and vast markets in fintech solutions. And since they're quite late to the party, turning to already established fintech companies is the fastest way to catch up.
Today’s banking industry still runs on age-old legislation that has remained mostly unchanged for decades. But in light of fintech’s involvement in banking and an evolving financial landscape, the US government is taking steps to modernize the regulations surrounding financial institutions.
Speaking on this issue, Acting Comptroller of the Currency Michael J. Hsu raised the following key questions:
Hsu added that answering these questions requires modernizing the bank regulatory perimeter in a way that clearly defines “doing banking” and the boundaries of bank-fintech relationships.
Talk of regulatory modernization and acknowledgment of bank-fintech partnerships at the OCC level inspires more bank-fintech collaborations. It also puts into perspective the pressure to change the status quo in banking to embrace modern innovations.
A bank-fintech partnership is a win-win relationship. But businesses that rely on financial services are arguably the biggest winners.
Banking as a Service is undoubtedly the future of banking. In fact, the concept is already reshaping the financial landscape today. Bank-fintech collaborations have so far yielded disruptive concepts in the financial sector, such as neobanks, digital banks, embedded finance, and open finance. These enable institutions to break the norm by incorporating modern financial technologies into banking services. The account holders (businesses and individuals) benefit through consumer-focused banking solutions such as easy financing, personalized banking, lightning-fast operations, and incredible convenience.
There’s no doubt about it; alternative banks are quickly outpacing traditional banks. As we’ve seen, collaborating with fintech companies is the only way banks can transform fast enough to keep up with the competition pressure. In order to stay afloat, banks must utilize business opportunities beyond the traditional depository, credit, and withdrawal services.
Loanspark is a fintech company that fully understands the need for banks to evolve. That’s why we welcome partnerships with banks and credit unions to expand their service scopes and clientele through robust financial technologies.
Among other perks, our bank partners enjoy data-driven capital provider diligence. Loanspark helps banks to automate critical borrower evaluation processes, such as:
With our robust automation systems, banks can verify borrowers faster, safely, and more accurately. This minimizes the banks' lending risks while massively improving service delivery. Partnering with Loanspark ensures your bank never loses another customer due to inadequate data or slow or erroneous verification processes. Remember, today’s financial market demands speed, efficiency, and convenience—everything you get with Loanspark.
Take the first step toward future-proofing your institution by modernizing your banking processes with Loanspark.