Benefits, but changes too: Though banks feel they might possibly be edged out by fintechs, they recognize that there are benefits from formulating partnerships with them.
- When asked why banks are considering fintech partnerships, 78% cited revenue growth, 77% said improved product time to market, 77% listed increased customer loyalty, and 76% said better customer service.
- 65% of banks said they’d prefer to partner with a fintech to aid in their digital transformation rather than build it out themselves. Forty-nine percent of banks said they don’t believe they have the infrastructure to make a successful digital transformation on their own
Banks are also recognizing that to co-exist with fintechs and avoid obsolescence, they may need to change their business model.
- 52% of banks already provide their services to third parties as part of a banking as a service (BaaS) offering as an additional source of revenue
- 74% believe that BaaS will become the primary business model for traditional banks moving forward.
Our take: The survey findings reveal that banks are coming to terms with fintechs encroaching on their territory, and that they’re adapting to remain relevant. While some banks still feel threatened by these new fintech entrants, a few points should help put them at ease.
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Regulators approve of the partnerships: The US Treasury published a report late last year highlighting the good that fintechs bring to the financial industry, including diversity and competition. The report also advocated for partnerships between banks and fintechs to benefit consumers.
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Fintechs aren’t regulated: Because of this, fintechs can’t provide many banking services without the assistance of a bank itself. And when a fintech oversteps its bounds, regulators will step in. Banks must be aware, however, that bank-fintech partnerships are prone to risks, such as money laundering, data security issues, and accountability conflicts.
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BaaS won’t eliminate traditional banking: Banks offer a wider variety of services and experiences than most fintechs—and all in one place. Though BaaS will provide a valuable revenue stream to many banks in the future, it won’t completely replace the need for traditional banks.