andrewaltschuler

[andrewaltschuler]

Collaboration between Banks & Fintech Companies

The term fintech is short for financial technology and describes financial institutions emerging in the market with technology-based business models. Banks and fintech companies are financial services providers and compete for customers' time, attention, and disposable income. However, in the past couple of years, both competitors have begun to explore a potential synergistic relationship while maintaining healthy competition between each other. But there is still the question of how banks and fintech companies can play on each other's strengths and how such collaboration is necessary for financial innovation and inclusion. Banks and fintech companies can support each other with their customer bases. Younger generations are likely to be attracted to fintech services since they're more technology-savvy than older generations, who prefer conventional banking methods because it's easier to stick with what they know. While this might seem like a competitive advantage for both institutions, that is far from the case. Currently, the boomer generation holds the most wealth globally, so traditional banks are having their fill. Yet, statistics show that the rate at which gen-z wealth grows is the fastest compared to other generations. This news poses a threat to the longevity of conventional banks, yet fintech companies currently have a limited market reach. But banks and fintech companies can form partnerships where they exchange data and strategies to achieve customer satisfaction for younger and older generations. Mergers will cross out some of the setbacks for both institutions and provide an opportunity for financial reform and inclusion. Banks and fintech companies can also work together by modeling the popular business rule of thumb, encouraging business owners to focus on their strengths and outsource their weaknesses. After the 2008 global financial crisis, many customers lost confidence in the conventional banking system and their private financial data safety in banks. Rather than try to prove themselves to regain customers' trust, bank executives can outsource their risk analysis and security services to fintech companies specializing in that area. An excellent example of this was in 2020 when the Baltic International Bank employed the services of the fintech company, Sigma Ratings. The latter uses an advanced approach to assess the risk of financial crimes and management efficiency at the organizational level. The company executed an independent assessment of the Baltic International Bank, detecting the organization's threats as related to the prevention of financial crimes, sanctions, and corruption. Although they are very convenient, Fintech companies are still relatively new and lack an established track record. As a result, many customers, investors especially, are skeptical about leaving a significant portion of their wealth in fintech companies. On the other hand, classical banks have stood the test of time since their existence in the late 15th century. By joining forces with reputable banks, fintech companies can benefit from their goodwill and loyal customer base. In return, the banks expand their market share and could receive commendations for embracing technology-based solutions in finance. Finally, not all assets and financial products can be transferred easily from traditional banks to financial technology institutions. Consequently, customers will require the services of both types of financial institutions, so they might as well work together.