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The FinTech – Financial Institution Marriage (Part-2)

The FinTech – Financial Institution Marriage (Part-2)
September 19, 2016

We have seen that FinTechs are redefining the business and posing tough competition for establishments like banks and other financial institutions. In my previous blog I highlighted the drawbacks of existing as standalone player. Since each one’s strengths compliments other’s weaknesses, it is only logical for FinTech and Financial Institutions to come together and collaborate. Playing and competing against each other is going to hurt FinTechs and financial institutions alike. Most will perform well by finding a way to collaborate with each other instead. This leads us to the next two strategies—Partnership and Captive FinTech.

Strategy 2: Partnership between FinTech and Financial Institution

When FinTechs and FI come together the drawbacks and weaknesses of FinTechs may be moderated. For example, they may have access to data, regulatory expertise, reputable brand, but many of the financial institution’s disadvantages may still persist. For example, slowness, risk-averseness, traditional processes and working in silos, are still in place. The partnership also impacts the FinTech’s strengths like speed, experimentation, and cohesion that begins to go out-of-action. Furthermore, new problems and difficulties may spring up: goals may diverge, information sharing may not be transparent and complete, cultures may wildly differ, and signoffs can be painfully slow.

A FinTech-Financial Institution partnership improves some, doesn’t address others and creates new challenges. Partnership strategy may work depending on how the financial institution engages with the FinTech. These new challenges that arise due to partnership can also be mitigated in a number of ways. A way to overcome the challenge of diverse goals will be to focus on individual goals (though they will be different) to ensure they are compatible, building trust and transparency into practices from the beginning etc. Although partnering with FinTech will be a tough task for FI initially but with practice, commitment and perseverance, the partnership will propel the financial institution to the greater success in the market place.

Strategy 3: Captive FinTech

A Financial Institution bringing a FinTech in-house reinforces the strengths and eliminates weakness apparent to each entity. This strategy nullifies the weaknesses of each entity and also makes the newly risen complications like different goals, incongruent culture etc. inoperable.


Collaboration being the obvious choice, we often see banks and FIs opting for either strategy 2 or 3. FIs are partnering to stay in the game and be relevant. They are more eager to partner with or buy out startups which are challenging crucial lines of business in the financial services industry. Few latest news from public sources reiterates this: DB now allows third-party FinTechs to connect to the bank's systems. BBVA launched an Open API platform which enables third parties to provide auxiliary services that leverage BBVA customers' account and card data, Ally Financial bought online brokerage TradeKing Group, and BlackRock acquired online investment firm FutureAdvisor for $150 million