Banks and fintechs: a collaboration to drive the industry forward
Together, transaction banks and emerging technology companies are ushering in a new era of financial services –bringing new innovations and business models. Yet,seizing the opportunities at hand will require a collaborative and customer-focused approach, say Claudio Camozzo and Jan Kupfer, Global Co-Heads of Global Transaction Banking, UniCredit
Over the last few years, our industry has witnessed an explosion of new fintech entrants, bringing a raft of new innovations to financial services. Most transaction banks are now beyond seeing this trend as a threat to their market positions; rather, they are embracing the opportunity to learn from the new entrants’ innovative approaches and ideas. Indeed, through different models of collaboration, transaction banks and fintechs can work together to revolutionise the industry.
Certainly, the risk of fintechs disintermediating transaction banks is far smaller than many foretold – not least because banks and fintechs have different strengths and goals. Many transaction banks offer a wide range of critical services across the entire value chain, and position their solutions in terms of a wider customer relationship. Fintechs, on the other hand,tend to focus on a specific service within the value chain and optimise their solutions accordingly.
Given that transaction banks hold the well-established customer relationships – many of which are based on years of trust and reliable service –it’s hard to see how fintechs pose an existential threat to banks. What they do offer, however, is a fresh, agile and innovative approach to problem-solving. And combining this with transaction banks’ industry expertise and customer knowledge promise seven better results than those delivered by either party working in isolation.
There are various models that can facilitate this collaboration – each applicable to different scenarios. In some cases, transaction banks may choose to finance, or acquire directly, promising fintechs. Many banks also have their own venture capital funds and accelerators to encourage the development of financial technology start-ups. At UniCredit, for example, we have UniCreditevo – a USD 200 million fund that focuses on identifying and investing in promising fintech companies.
In other cases, transaction banks and fintechs may form partnerships – more often than not involving an agreement for the bank to use or acquire a solution developed by the fintech, or for the bank to contribute to its development by leveraging its historical knowledge of the sector. In some partnerships, the involved parties can collaborate to jointly deliver solutions to customers, for example with the bank providing the financing capability to underpin the solution. This was precisely the case in a recent UniCredit-fintech partnership, where the bank integrated into their platform in order to provide 360-degree coverage of a client’s supply chain finance requirements. This collaboration gave the client unprecedented flexibility – enabling it to combine and switch between tactics with ease. It also strengthened the relationship between bank and client – with UniCredit able to offer support even when direct bank financing wasn’t required.
No matter the nature of the relationship, transaction banks need to be certain that fintech solutions match the standards that customers have come to expect, whether in quality, security or integrity. Certain key business functions such as the treasury may prove too complex for fintech solutions, and it is also a reality that a good number of start-ups will fail – just like in any other industry. To be sure of their investment, transaction banks must screen potential fintech partners for quality and long-term viability, while working with them closely to identify the customer use cases most suitable for their technology.
Certainly, fintechs have brought new levels of innovation across financial services for the benefit of all stakeholders – especially the customer – and this can only be a good thing. At UniCredit, we have a proud history of pushing the boundaries of technological innovation, and bank-fintech partnerships are simply another step on this journey. Indeed, they can turn competition to industry acceleration, where everyone wins. An integrated, data-driven financial ecosystem where various parties play to their strengths to deliver new value is the future we envision, and we are excited to see what the future holds.
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