ChartIQ Blog

Posted on by Hanni

Collaboration: The Dominant Trend in Finance

Several trends emerged last year across finance and tech; however, the most prominent was the marked and changed relationship (both perceived and actual) between large traditional banks and smaller, innovative FinTech startups. Last March, PwC released a report that stated 95% of banks believed part of their business was at risk of being lost to standalone financial technology companies.  Today, the finance industry views collaboration between the institutional side of finance and startups to be mutually beneficial, and less of something to be feared (although some fearful sentiments still persist around competing for market share).  We’ve noticed that in just under a year, the finance industry has assuaged the fear of FinTechs by not only embracing collaboration, but by quickly putting the “collaborative approach” into action.

For more detailed information check out PwC Executive Summary “Redrawing the lines: FinTech’s growing influence on Financial Services”.

The mentality shift between large institutions and FinTechs may have evolved out of necessity. Rene Lacerte, CEO and Founder of Bill.com, comments: “Frankly, these partnerships are a matter of survival. Large banking institutions lack the focus and digital know-how of a startup. Meanwhile, fintech business models were forged from a frustration with traditional banking’s legacy UIs and experience.” Regardless of the motivation, the partnership approach has proven to be truly symbiotic and a strategic option for many of the larger banks while allowing a nice inroad for startups to access the larger market. We couldn’t help asking ourselves how this major shift in attitude came to be in a relatively short amount of time. As we learned more about the benefits, we understood the reasons behind the collaborative approach more clearly. Trust us (or keep reading), you’ll see many more partnerships and collaboration in the year(s) to come.

Over the past few years, most large institutions came to the brutal realization that they couldn’t meet mounting consumer expectations on their own. From product conception to execution, consumer experience to delivery on all devices - the major players were unable to keep pace with the rapidly increasing demands from both individuals and businesses, who demanded much more specialized products.  At the beginning of the year, Jonathan Auerbach of PayPal stated: “Looking ahead, neither start-ups nor traditional financial institutions will be able to single-handedly provide the array of specialized products and services needed to address the increasingly fragmented financial lives of 21st century individuals and businesses.”  

More often than not, product enhancement and go-to-market delivery time gets bogged down by compliance and security regulations at large institutions. In short, big institutions are SLOW. Slow to adapt, slow to change, and slow to develop new products, especially when compared to many startups. Institutions move at a glacial pace - not a great dynamic in a world driven by fast moving technological competition and consumers expecting a "Web 2.0" experience in every online interaction.

Instead of waging war on the funded and innovative FinTech community, institutions identified resources (both time and money) were limited - even in the biggest of banks - and considered outsourcing to alleviate the pressure. Partnerships became not only a viable option, but an option that lead to massive improvements that directly impacted the bottom line. According to a recent Business Insider report, 87% of banks that have partnered with third-party financial service providers (FinTech companies) have been able to cut costs. Additionally, the same study found that 54% of partnerships increased revenue. * The agility and fast moving pace of startups helps big banks expedite innovation and product development, and results in products hitting the mass market sooner. The scope and size of audience within an institution allows for varied and significant feedback which informs both partners. 

Adding Agile Development and newer technology to the mix through FinTech startups meant financial monoliths could finally solve their biggest problem (the ever so slow moving pace of a legacy institution) and not only match, but exceed consumer expectations in an entirely new way. Delivering highly specialized products with the very best quality to their consumer base became attainable by leveraging the resources of smaller, more nimble companies who specialized in very particular areas of finance.

Naturally a partnership benefits both parties - so what’s in it for the FinTech community?

FinTechs associating their names and technology with an industry leader brings obvious benefits to a startup’s own brand, and this alone can be motivation enough for startups to engage in a partnership. Beyond the obvious benefits of brand building, startups see major advantages from a product development perspective. Market leaders bring to the table a large, established audience giving developers instant and significant feedback. A feedback loop from the exact audience for which the product was intended, is the best testing ground for developers. Nimble startups will immediately get to work making necessary changes or adaptations, and increase the quality of the product with additional functionality in a short amount of time.

Another benefit from working with the large banks is the massive scope and scale of projects that have near immediate impact on the industry. Not only do they reap the benefits of working with industry experts in these partnerships, a new sense of scale and market understanding can be extracted that participants can carry home, customize, and weave into their company’s overall business intelligence and go-to-market strategies.  

Long-term relationships are vital to business success. When partnerships work, we keep them around and rely on them for future endeavors. Many institutional banks and startups alike have identified the great possibility of accelerated and long term growth through joint collaboration.

The financial industry began 2017 with the understanding that there is more value in cooperation than in rivalry; more competitive edge in partnerships, and higher quality output when all strengths are combined (and to double down, this higher quality output leads to happier customers). The collaborative approach increases  brand equity for both sides and has buried the “Us Versus Them” mentality we hope, for good. At ChartIQ, we’re happy to report that we are fully committed and lucky enough to have experienced the collaborative approach.  We found it a thrilling environment in which to learn, create, test, and most of all - deliver great capital market products.

See how ChartIQ is partnering with financial institutions and other FinTech startups.

CUSTOMERS AND PARTNERS

 

Sources: