Bank modernization has become increasingly important as financial institutions face growing competition, changing customer expectations, and pressure to introduce new products and services more quickly. While banks have traditionally relied on outside technology providers, the rapid growth of fintech has changed the nature of those relationships, creating both new competitive threats and new opportunities for collaboration.
Fintech partnerships can give banks access to specialized technologies and capabilities without requiring them to develop every solution internally. Cloud platforms, Banking-as-a-Service, Software-as-a-Service, and API integrations are making it easier for financial institutions to modernize systems, improve customer experiences, and introduce new services while working within their existing resource constraints.
This article at Fintech Futures is a warning to banks not to let themselves get outdated. We have written much on the topic of bank modernization and how critical it is to the FS industry. The author is this case is a proponent of banks establishing partnerships as the primary means to this end. The author is also a senior at a fintech specializing in cross-border payment transactions.
‘Partnerships are not a new feature of the industry – and we are seeing more of them emerge every single day. Just recently, Santander announced a partnership with SAP Spain to support digitisation and enhance the onboarding process for new clients, while Morocco’s Attijariwafa Bank launched a partnership with Thunes to power their cross-border payments….To understand the importance of partnerships, it helps to understand the challenges banks face: a growing number of threats and competitors, a customer base that is becoming more open to new providers and a stretched pool of resources to respond to these issues.’’
If you had been at a banking industry event 5+ years ago you may have had a majority of attendees who thought fintechs were the enemy but that has shifted to the point where cloud and BaaS/SaaS technology is being adopted by banks at relatively fast pace for the traditionally slow moving financial services industry. In effect, banks have always used technology partners for various systems delivery, but the newly minted and fast-paced fintech sector that directly targets bank clients (more so on the consumer side than corporate clients, at least to date) is something that wasn’t a traditional threat. However, there is a recognition (on both sides) that fintechs can help banks and vice versa, so more partnerships than ever before are occurring to help with bank modernization.
‘Through something as simple as an API integration, banks can offer new products that make customers’ lives easier and keep them engaged and excited to use their services again. And integrations are not simply added value for customers – the time and money they save also converts into added value for a bank’s business, too….Partnerships are a proven solution that allow banks to successfully navigate growth and overcome barriers to innovation. Those that take advantage of partnerships now will retain and grow their customer base and ensure their longevity in an increasingly competitive market. Those that delay action risk ending up like a head of M&S broccoli that spent one day too long in the fridge – you can still use it, but you’ll know that it’s a little past its true potential.’
The relationship between banks and fintech companies has evolved considerably. Fintechs were once frequently viewed primarily as competitors that could take customers and revenue away from traditional financial institutions. Increasingly, however, both sides recognize that their capabilities can be complementary. Fintech companies can provide technology, speed, and specialized expertise, while established banks bring customer relationships, regulatory experience, infrastructure, and trust.
Partnerships can also provide a practical alternative to undertaking major technology projects entirely in-house. Through APIs, cloud technology, and other integrations, banks can add capabilities that improve customer experiences without rebuilding their entire technology stacks. This can reduce the time and resources required to introduce new services while helping institutions respond more quickly to changing market expectations.
For financial institutions, the challenge is no longer simply determining whether modernization is necessary, but identifying the most effective way to accomplish it. Strategic partnerships can allow banks to focus internal resources on their core strengths while relying on specialized providers for technologies and capabilities that would be difficult or expensive to develop independently. As competition continues to increase, fintech partnerships are likely to play an important role in bank modernization, helping institutions remain relevant, expand their services, and respond more effectively to evolving customer needs.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.