Fintech brands continue to strengthen their position in the competitive and fast-changing financial sector. They're doing this by following different strategies that are helping them acquire users, boost adoption rates, and cement their services as vital in the business and consumer space.
When the current wave of Fintechs first emerged, these companies seemed set on challenging established financial institutions. In more recent years, the narrative has changed. Fintechs have recognised that banks are strategic partners that can help build their brand and distribute their services.
And banks are more than happy to work with Fintechs. Many have recognised the utility and adaptability that partnership with innovative Fintechs can bring.
Christian Lanng, co-founder and CEO of Tradeshift, the leader in supply chain payments and marketplaces, describes why established players are keen to embrace Fintechs. "If you're a large company today, you can try to cut costs, and that will get you somewhere, but ultimately if you want to continue to be successful you need to generate new markets, and you need to capture more customers, and all of that is honestly an innovation game, it's actually what these last generation start-ups have shown us, that if you don't innovate, you don't get to unlock the new market."
This is seeing banks invest significant sums into innovation and partnering with Fintechs. HSBC, for example, announced earlier this year it's allocated $200 million globally for investment in Fintech and enterprise start-ups. While Banco Santander made 23 equity investments to 19 unique Fintech start-ups in 2017 through its venture arm, Santander InnoVentures.
There are many ways that Fintechs and banks are collaborating. One of the most popular methods is co-creating within a bank-funded incubator. Banks and Fintechs use these as an opportunity to learn about each other's technology and to see how they can work together.
Most major banks run a programme like this. Take Barclays — the bank has run a successful incubator programme for many years, which has led to several Fintechs signing agreements with them. For example, Barclays is trialing itemised receipt technology, designed by Flux, a UK start-up, with 10,000 of the bank's customers.
If these trials are successful, the partnership between banks and Fintech often becomes more formal. For instance, Fintechs may white-label their technology for the bank. This allows the start-up to circumvent the entire user adoption challenge, by tapping into the customer base of another organisation. Automated pensions advice service Wealth Wizards focuses on white-label deals, with insurance provider LV= being an early adopter.
Banks may also invest in, or even acquire, the Fintech to use its technology internally or offer the service to its customers exclusively. For example, last year, J.P. Morgan acquired payments start-up, WePay. The bank said it would provide its 4 million small businesses clients with WePay's payments technology.
Speaking when the deal was announced, Bill Clerico, founder and CEO of WePay, explained why it accepted J.P. Morgan's offer. "Being part of the Chase family — with its global capabilities, brand and scale — will help us better support our growing list of platform partners and the businesses they serve. We're excited to marry the distribution of one of the world's largest and most respected financial institutions with the best technology and talent in Silicon Valley."
The regulators are fully supportive of the love affair between banks and Fintechs. In Europe, they've even put in place regulation to promote collaboration. PSD2 became law across the EU in January. PSD2 mandates 'open banking' which requires banks to open-up their payments infrastructure and customer data to third-party firms through APIs. The idea is to give non-banking firms the chance to compete with banks in the payments business and give consumers more choice over financial products and services.
Despite some initial reservations from the banks around what this would mean for some traditional revenue streams, there is a growing enthusiasm about the opportunities PSD2 may create. A survey by Temenos of 248 senior bankers across the globe found 80 percent see open banking as an opportunity, and 62 percent are willing to distribute third-party products through their platforms and channels.
And the Fintechs are ready to take advantage of this. For example, micro-investing Fintech Moneybox launched a successful open banking integration with Banco Santander at the beginning of August. Almost overnight, Banco Santander could offer a new and innovative service to its customers. While Moneybox suddenly had access to tens of thousands of potential new customers.
Of course, Fintechs don't always have to partner with banks to get their name out there. Many have gone their own way to capture the public's attention, applying innovative and headline-grabbing marketing strategies.
To provide just one example, Monese bank, which offers ultra-fast account opening for expats, is growing its user base through imaginative stunts. Norris Koppel, Founder and CEO, Monese, says: "Thinking outside the box and taking some creative risks has meant that in the past six months we've rebranded the famous Brexit bus and taken it on a positive tour through Europe to highlight the launch of our Euro accounts. And we even launched an open waitlist for the first interplanetary current account after the launch of SpaceX's Falcon Heavy. Both campaigns emphasised our inclusive approach to banking services." The value in PR from both stunts was huge, helping Monese to expand to more than 270,000 users.
The start-ups, unicorns and big names of Fintech are increasingly determining the future shape of the financial sector, but it will probably be through striking important partnerships, and in striking the public imagination, that the disruptors leave their largest mark.