Banks and FinTech startups: Just an affair?

Since all of us have started to use the word FinTech, the industry has seen a few changes already. In total, we can see three waves of FinTech development (see also my Slideshare of 2016 about this development):

Wave #1: FinTech startups attack (2009 – 2014): Mainly due to changed regulation, better technology and cheaper costs to found a startup.

Wave #2: Banks fight back (2014 – 2015): Banks recognised the threat of FinTech startups and decided to compete with FinTech startups on their level (“FinTech killer”)

Wave #3: Cooperation of banks and FinTech startups (2016ff): Better together? Both parties have discovered the advantages from the other party and started to work together.

At the moment we are still in wave number 3 with many cooperations either already live or in a soon to-be live status. But is this the last wave or will we see a fourth wave changing the landscape again? The answer comes down to the question: “Are partnerships between banks and FinTech successful in the long-term?”.

Who needs what?

In a cooperation of bank and FinTech startup, the former gains access to new ideas and innovative teams and the latter a partner with a license and a large customer base. So far banks have tried to copy startups and their innovative approach – unsuccessfully (second wave).

On the other hand, a license is often required to start and able to attract hundred-thousands of customer that can require very deep pockets. This led Startups running into the arms of traditional banks, as they could provide both.

Nevertheless, the model of license piggy bagging, where a young FinTech startup does not have it’s own license but is using one from a partner is not possible with traditional banks: already today we are seeing “startups” that allow other startups to use their license. And new regulation (e.g. PSD2) will definitely increase that.

But what about the customer base?  The success of a startup and bank cooperation will always come to how many customers will be able to be acquired. Very often the success of the complete startup depends on the success of certain cooperations. Reasons for failure could be anything from technical issues until limited promotion of the service to their own customers from the bank. Currently, there are many startups going for these cooperations, however, if this turns out to be a not very successful way, FinTech startups might also look into other direction. Who could that be? Well banks are not the only companies that have a huge customer base and certain capabilities. They might be the first-choice while looking for a partner, but maybe the third wave is not going to last forever. What do you think?

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