When will FinTechs and banks learn to work with each other?

Published in: BoardStudios

We recently had the opportunity to discuss about the present and future of fintech with the insightful Spiros Margaris (@SpirosMargaris), influential fintech expert and futurist, and founder of Margaris Advisory. We focused on one of the key debates of the industry: are fintech companies (“fintechs”) a resource or a threat to established financial institutions (“FIs”)?

Both sides – FIs and fintechs – have a lot to learn and benefit from one another. The challenge is that each considers the other the enemy. FIs should look at fintechs as a great resource to truly innovate but they treat them like a threat. Speaking at JPMorgan’s investor day, Jamie Dimon said that at Silicon Valley “all want to eat our lunch. Every single one of them is going to try”[1].

On the other side, fintechs should look at banks as complementary partners and potentially a resource to help them navigate a complex ecosystem, finance their growth, and ensure their longevity. What perhaps many fintechs don’t realize is that as they grow they will face stiff regulations and oversight. It would be beneficial to all participants – fintechs, banks and tech giants – to join forces in order to influence the future regulatory environment, and therefore their future.

The fintechs that are here to stay will quickly figure out that they need to work with the status quo in some form in order to change it. Unfortunately, fintechs and media consistently paint the status quo as evil: out to get customers and relieve them of their hard-earned money. That’s the narrative that media sensationalize and readers love.

This ‘evil message’ helps fintechs to win customers, to motivate their troops and to form a leading message and vision they can hold on to. However, they need to remember that one day those enemies will or must be friends.

Fintechs believe that they can make the world a better place by eliminating evil established players. But they shouldn’t discount their competition completely. Fintechs may have won the first round… but what if incumbents wake up to the notion that perhaps they don’t need the fintechs?

Banks will not just lie down and die. Instead, they can copy fintechs. Take for example robo-advisors – why not add the offering instead of losing customers? Sure, part of the banks’ business will be cannibalized but it’s going to happen anyway. Fintechs counter to such a threat? Work with each other! Right now, each fintech company is fending for itself. What if they joined forces?

The bottom line: fintechs and FIs are the perennial frenemies. They’re fundamentally at odds with each other, but eventually they have to work together and both will potentially reap huge benefits from such a partnership.

[1] http://blogs.wsj.com/moneybeat/2014/02/25/dimon-sees-threat-from-silicon-valley/

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