By Susan French, BBVA Open Platform
These days, there’s no such thing as business as usual.
Like everyone else, financial services people are scrambling to adapt to a fast-changing world. In this age of factionalism, it’s tempting to characterize the relationship between banks and fintech as purely antagonistic – the plucky, agile David versus the lumbering, powerful Goliath – but the reality is that expediency beats ideology every time. The future is all about interdependence and partnership.
The idea that startups and banks need to rely on each other is not new, yet despite resounding consensus that more partnership is needed, the question of how has remained unanswered, until now.
Open APIs offer a solution to the “how?” in partnerships.
Financial institutions need fintech
Google, Apple and others have trained consumers to expect seamless, user-friendly interactions. Whether on their mobile device or a website, they assume payments will just magically happen. Banks understand their customers’ demands are changing and offering the best solutions to all of a customer’s expectations is unrealistic.
As the corporate world moves towards digitization, it is next-generation technology, like that offered through API-driven Banking-as-a-Service programs, that is going to give enlightened banks the edge over their competitors. By setting up the infrastructure to enable third parties specialized in niche services, banks can source fantastic ideas from the broader market, acquire more customers and offer those customers a superior experience.
Banking as a Service (BaaS) – once considered a niche phrase - is beginning to create buzz in financial services, but also across industries outside of fintech. This is partly because Banking-as-a-Service is an attractive new business model for smaller banks and credit unions as well as large multinationals. Unlike open banking, it doesn’t require a large user base.
Banks of all shapes and sizes are looking for new ways to serve a broader base of customers with a better customer experience.. Collaborations with fintech companies can generate exciting new products: digital account opening platforms, tools to streamline loans and payments, an in-app transport service for customers even – the possibilities are endless. The “API-ification” of banking is happening and banks must act quickly and be willing to rethink traditional ways of serving customers to avoid being left behind.
Fintech needs financial institutions
In banks we trust. Not a phrase you heard much ten years ago. But compared to the fleeting, fragmented digitized realm, traditional brick-and-mortar institutions stand for compliance, reputation and tangibility. The good news for fintech companies is that these qualities can be acquired by association.
Seen in this light, the rigorous client onboarding undertaken by banks can actually bring a competitive advantage to startups. Working alongside an established financial institution can offer fintech companies a clear path through some fairly dense industry undergrowth, particularly when it comes to legal, compliance and regulatory optimization.
And collaboration means BaaS consumers don’t need to jump through hoops to acquire official bank status. Their chartered bank partners can provide compliant deposit management and insurance, which leaves the fintech company free to concentrate on trailblazing customer experience.
Add in the obvious fact that banks bring finance to the party, it’s not hard to see what startups have to gain from forging strategic partnerships.
The partnership gap
So, in theory, there are plenty of sound reasons for financial institutions and fintechs to cultivate strong relationships. The reality is not so rosy. As we know, banks are happy to finance startups, but persuading them to allocate more resources to collaborate is a trickier prospect.
For tech companies, embedding white label banking services into a product to create seamless customer experiences is obviously a great idea, but working through risk and compliance requirements is daunting, to say the least.
To a large extent, this is a problem of communication: startups don’t speak bank, and banks don’t speak startup.
The partnership bridge
A symbiotic partnership between the two requires a common vocabulary and increased empathy between two groups that look and feel so different from one another.
Today, more banks see customer-facing fintech companies as potential partners and it’s exciting to watch this change.
Susan is Head of Product at
. She leads the design and development of Open Platform’s groundbreaking suite of white-label, banking-as-a-service APIs in the U.S. Susan is a payment, digital commerce and financial services expert, working in the financial services sector for more than 25 years.