Fintech expert on collaboration between banks and fintechs: ‘Make clear what the division of roles is’

Collaboration was one of the most frequently used words at finance conferences in recent years. Yet in practice it turns out that it is not always easy to align a fintech with a traditional player in the financial industry. In order for an acquisition or collaboration to be as successful as possible, both banks and fintechs need to understand each other better, argues fintech expert, member of the Holland Fintech advisory board and founding partner of BankiFi Conny Dorrestijn.

Dorrestijn explains in this blog how banks and fintechs can get the most out of a partnership or acquisition. “A collaboration on the basis of equality, that is a philosophy that only works on a PowerPoint slide.”

Different game

The most important lesson of Dorrestijn is that a fintech, just like the bank, needs to delve deep into the partners it does business with. After all, fintechs and banks play a completely different game. “A bank is not an IT-company but a trust institution. They have the customer base but are also under enormous compliance pressure. Fintechs own the technology; they listen better to the customer and build exactly what the customer needs, as they are not hindered by legacy systems. They can often solve an immediate problem or make a bank more efficient, but traditional banks are still too eager to stick to old product-oriented earning models such as lending and saving. Banks need to abandon this vertical approach and start creating end-to-end solutions. That is where the added value lies, and the much needed (services based) income.”

The division of roles between the two needs to be clarified before the deal is finalised. And that is not equal by definition, says Dorrestijn. “Language dictates the game. That's where it goes wrong. A partnership implies a certain degree of equality, whether it concerns the goal or the type of relationship. That is totally incorrect. The bank is the elephant and the fintech the mouse. They do not make natural bed fellows.”

Supplier of technology

The relationship between the two needs to be more realistic. Fintechs are the supplier of the technology for the banks. They know what the customer wants and can deploy the products in the right way. No more and no less. Dorrestijn: “Fintechs think they are equal, but they are a supplier, not a partner. That means that fintechs have to put their ego aside and operate in favour of the bank, because banks have the trust and the customers, something they tend to lack and is hard and expensive to get by.”

A smart bank does not give away its customer affinity and loyalty to fintechs. “A smart bank says to fintechs: ‘do what you do best, but we want to be the channel towards our customers. Put your solutions behind our front door, under our name’. That way, a bank can continue to promote its own brand and build customer loyalty. And fintechs can deploy, get traction, learn fast and operate – if wanted – in both the brand end customer way, as well as white label.”

Amount of work grows

Thanks to this approach, banks can take big steps and save considerable costs, says Dorrestijn. “Banks are under enormous compliance pressure. IT-people are the real heroes of the bank at the moment; they keep the systems safe and make sure their operations run efficiently. But the amount of work continues to grow. In the meantime, some of the IT-people within a bank work at the front-end on new products and totally new technologies. But why build yourself? Have you ever seen a surgeon build his own operating room? No! That is not the smartest way to proceed, because that way a bank spends money on a tech supplier but also asks expensive – and hard to hire – people to build tech solutions themselves at the same time. Turn your capital expenditure into operational expenditure – work with fintechs and pay as you go as you absorb their services in your bank channels.”

Complexity

From the fintech perspective, Dorrestijn sees that many fintechs complain about partnerships with banks, but do not study the complexity of the bank. “Thinking in vertical columns that need to be broken, regulation and compliance that increase the workload: these are all things that influence the relationship between a fintech and a bank. Fintechs need to be aware of this; building and deploying bank grade tech is very different from building a single task app.” And fintechs also need to learn to say no. If a process takes too long, for example. You can’t keep on negotiating while cash runs out in the meantime. And sometimes you have to be practical, for example by focusing on a proof of concept first.”

If both camps move towards each other, the chances of success will be much higher. “In the end, fintechs and banks need each other”, says Dorrestijn. “As I said, the bank has the trust and the customers, the fintechs on the other hand know how to build modern customer centric tech. In order to bring new, customer-friendly solutions to the market in the right way, banks and fintechs can help each other a lot and make banks ‘fit by relevance’ for the future.”