Fintechs and legacy banks: Collaborating in a digital future

For many years, legacy banks have looked upon fintechs as unwelcome disruptors in the financial industry. However, this stance is now changing, with the rapid rise in electronic payments and digital financial service models. The pandemic further accelerated this adoption of technology in the global financial sector. For example, fintech app usage grew by 72% in Europe after the Covid-19 outbreak. India is the global leader when it comes to fintech app installs, with 149 crore installs from January 2019 to March 2021. 

To keep up with changing customer preferences in the digital age, the relationship between legacy banks and fintechs has evolved from ‘us versus them’ to ‘us and them’. Here is why this collaboration will bridge the gap between the world of legacy and digital finance to kickstart a new age of partner-centric financing. 

1. Creates a customer-centric approach to banking

Traditionally, legacy banks have been slow to adapt to changes. Monolithic systems, time-consuming practices, and glitchy processes that do not leave enough room for innovation have hampered business agility. This was one of the reasons why many conventional banks found it difficult to adopt remote working models in 2020. 

With an adoption rate of around 87%, fintechs are reshaping financing with their digital-first approach. They are quick to respond to evolving customer demands and can easily develop new products and services to meet these needs with accelerated, digitized delivery. 

With the help of fintechs, banks can access a wide variety of technologically advanced applications and platforms. By offering digital banking solutions, along with multi-channel interactions and a completely online banking journey, banks can appeal to the young, modern customer.

2. Leverages established networks and attracts new customers

When it comes to money, Indian consumers have historically been conservative. While they are increasingly opting for digital payments and value-added financial services, they are not likely to entirely give up on the legacy banks they have trusted for years. At least, not in the near future. 

Therefore, fintechs have a lot to gain from their partnership with established banks too. They can benefit from the years of experience that legacy banks have in navigating the financial industry. Banks also have a deeply entrenched market position that is augmented by in-depth regulatory knowledge, global footprint, and brand strength. Banks command trust and credibility within their established customer networks, and they also have sizeable budgets to fall back on. Fintechs can use these to increase their share in the global banking system, which is currently not sizeable.

Synergy is the Way Forward

The global fintech market is expected to reach $305.7 billion by 2023 as customers demand flexibility, multi-channel interactions and a digitally-enabled private banking journey. To offer customers a frictionless experience, while reducing costs and increasing revenue, a synergy between fintechs and traditional banks is necessary. Globally, many well-known legacy institutions have understood this and have set up collaborative partnerships with fintechs. For example, German neobank N26 collaborated with Wise, the money remittance fintech, to offer their customers access to affordable currency conversion channels. Mergers and acquisitions are also changing the landscape, like SoFi’s £1.2 billion purchase of banking-as-a-service provider Galileo.

Clearly, banks and fintechs need to co-exist to create a unified and interconnected digital future. Long-term collaborations that combine innovation (fintech) with support and trust (banks) to build the sector for the digital future are a win-win situation for both.

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