Fintech – Partners or Competitors?
A New Generation in Banking
by Claudio Camozzo and Jan Kupfer, Global Co-Heads of Global Transaction Banking, UniCredit
Innovations in financial technology, whether initiated by banks, established technology companies or emerging fintechs, have the potential to transform the way we do business, and pave the way for a new financial services ecosystem. This brings both risks and opportunities, but by approaching technology innovation in a way that is constructive, collaborative and customer-focused, the opportunities can greatly outweigh the risks.
Diverse businesses, diverse aims
Technology has always been central to cash and treasury management, with well-established solutions developed by banks, ERP providers and specialist cash and treasury management system (TMS) vendors. Recently, however, we have been witnessing a wave of new fintech entrants, leveraging new technologies, rapid development practices and new opportunities offered by regulators to participate in the financial sector, such as PSD2. These companies are typically young businesses that can be nimbler than large banks and established technology providers, and approach challenges from a new perspective.
Fintech has enjoyed a meteoric rise over the last few years, with around 12,000 fintech companies now active worldwide. Yet this number will eventually dwindle, as the majority of start-ups inevitably fail and those that see success are assimilated by larger banks. Indeed, the perceived threat of ‘disintermediation’ is, in reality, highly unlikely to materialise. Banks provide a wide range of critical services, such as secure, reliable payment services, FX and financing, on which customers depend to do business. Central to this relationship is trust, often developed over many years, and it is difficult to see how a typically small start-up business could dislodge this relationship. However, what fintechs do offer is a challenge to existing ways of working which has the potential to benefit both banks and corporations. Unlike banks, whose solutions approach the financial services value chain as a whole, and are positioned as one part of a wider customer relationship, fintech solutions are generally targeted at one specific service within the value chain, and therefore fulfil an enabling role. What’s more, banks’ financial heft puts them in an excellent position to facilitate the growth of fintech products, enabling them to devote far greater resources into refining and rolling out new solutions.
So, while fintechs may play a ‘disruptive’ role in some cases, they are more likely to be enablers. Furthermore, banks and fintechs do not have the same strengths, or the same goals. The challenge, and indeed opportunity, is therefore to identify the customer use cases where fintech solutions can complement bank offerings, creating value for the bank, fintech(s) and most importantly of all, customers. We see considerable opportunity for banks and fintechs to work together to identify use cases, develop proofs of concept, integrate and commercialise solutions that are proven to add value to customers.
There is a variety of relationship models that could facilitate this collaboration: for example, banks may choose to invest directly in promising fintechs, while in other cases, banks and fintechs will form partnerships. These partnerships can take two forms: firstly, the two (or more) parties can collaborate to deliver solutions to customers; secondly, the bank can provide a fintech with the settlement capability to underpin their solutions, and therefore they become customers of the bank.
Irrespective of the form a relationship might take, banks need to be absolutely confident that fintech offerings that are provided either within or alongside their own solutions demonstrate the quality, integrity and security that customers rightly expect. Some fintechs will inevitably fail, as start-ups in every industry do, while others will lack the product integrity that critical business functions such as treasury require. At UniCredit, therefore, we have a dedicated unit to screen the quality and sustainability of potential fintech partners and work with them to pinpoint the relevant customer use cases for their solutions.