The attitude of banks towards FinTechs and neobanks has become considerably warmer to the point where collaboration is now broadly accepted as the new norm. Indeed, HSBC, Deutsche Bank, and dozens of other Tier 1 banks have all partnered with various FinTech companies to open up new revenue streams and deliver more of what users are clamouring for.

A 2021 survey by Ernst & Young found that 51% of GenZ financial service consumers named a FinTech company as their most trusted financial brand. Whereas millennials ushered in the FinTech revolution by adopting mobile payment apps and FinTech investment platforms, GenZers grew up with FinTechs and digital technologies as the norm. This makes GenZers a more difficult cohort to appeal to, as reported by The Wall Street Journal. They expect financial services to be personalised to the extreme, as well as demanding top-quality functionality from financial brands.

But GenZs are far from the only demographic to say it trusts FinTech brands more than banks. The same Ernst & Young survey found that only the 65+ demographic trusted a national bank more than it trusted a FinTech company — 25% said they trusted a national bank compared to 20% who trusted a FinTech company.

In the 55 – 65 year old cohort, 26% trusted a FinTech company the most, compared with only 22% who trusted a national bank the most. And the gap gets wider the younger the audience.

The landscape for financial services has changed, and incumbent banks are now partnering up with what JPMorgan Chase CEO, Jamie Dimon, once called an “enormous threat” to banks. Now, as we are starting to see, FinTechs are an enormous opportunity.

The initial FinTech threat to banks
The FinTech threat to banks was noted as being very real already back in 2016. Research published by McKinsey in February of that year referred to FinTech’s encroachment on the industry as “the FinTech moment”.

The research exposed six distinct advantages that FinTechs had over incumbent banks, including innovative uses of data, strong reduction of costs, and ‘advantaged modes of customer acquisition’, etc.

And Harvard Business Review published an analysis in 2017 that pointed out that banks had been slow to digitise. It suggested that banks should partner with FinTech companies to provide the digital services that the banks lacked.

Banks turn to FinTechs as partners
By 2019, 42% of banks had begun a joint partnership with a FinTech company, according to a survey conducted by PwC. By 2021, banks were showing particular interest in the FinTech sector’s ability to help with digital account opening, mobile wallets, fraud, and risk management.

Some examples of these partnerships include:

American Express partnering with digital card platform i2c to provide a plug-and-play onboarding platform for FinTechs and financial institutions, enabling them to launch innovative payments solutions for consumers and businesses.

Citi Bank partnered with IntraFi to offer a deposit sweep solution to institutions, lauding IntraFi as “one of the most innovative companies in the FinTech Liquidity Management space” in its announcement of the partnership.

City National Bank, a subsidiary of Royal Bank of Canada (RBC), partnered with Extend, a FinTech platform that ‘enables frictionless virtual credit card issuance for banks, corporations, and other startups.’

Bank of Montreal partnered with Blend, a digital lending platform, to improve the mortgage experience for customers.

Bank of America and Zelle, a digital payments network, partnered up to improve Bank of America’s digital payment capabilities. The result was a resounding success.

Barclays and Flux partnered to add digital receipts to the Barclays banking app.

TD Bank Group and Flybits partnered to improve the banking experience for customers.

The list goes on; a veritable who is who in the world of banking, revealing a sea change in how banks think of FinTechs — not as rivals, but as symbiotic solutions for mutual growth.

A simple FinTech solution for banks
Indeed, banks have no lack of innovative ideas, but partnering with FinTechs can help them bring these ideas to fruition sooner. Tamara Kostova, CEO of Velexa, comments: “Having spent nearly two decades working with Tier 1 financial institutions, I realised, ultimately, that we are all trying to serve the end consumer better. As a FinTech, we are agile with our service delivery, product roadmap and innovation, and banks can advantage of this.”

Figure 5: Technology platform for embedded investing services / Source: Velexa, 2023

And from a FinTech’s perspective, especially in the more conservative European market, partnering with an incumbent bank lends a degree of authenticity to that FinTech brand in the public’s eye. This makes customers more willing to try the FinTech’s service.

We see the next major area for innovation between FinTechs and banks beyond lending and payments is democratising wealth management services - further embedding investment offerings into existing banking channels.

By embedding a FinTech investment platform, for example, into a bank’s mobile app or website, customers might feel more reassured that the service comes from a brand they can trust — their lifelong bank — and so be more likely to adopt it.

You can read and download the full WealthTech 2023 Report here.