Banks Fintech Collaboration: An Unlikely Friendship

By Rajashekara V. Maiya Who would have thought a few years ago that incumbent banks and their non-bank challengers would actually get together? Yet there has been a spate of bank-fintech collaborations in recent times. The competitive narrative seems to be changing on both sides as banks, while acknowledging the fintech threat, see a bigger opportunity in partnership, and fintech startups no longer aspire to be giant slayers. This was echoed in the findings of the EFMA-Infosys Finacle “Innovation in Retail Banking 2016” survey, where 77 percent of bank respondents rated the threat of non-traditional competition as high or very high; but in the same breath an almost identical proportion (73 percent) said partnering with startups was the best way to access disruptive technologies, the very thing needed to provide superior products, services and experiences to customers. For most banks, a fintech collaboration offers a practical way to sidestep their own legacy technologies to quickly enter the “disruptive ecosystem” ruled by new-age players. Banks are going about this in two ways – by setting up accelerators or incubators in support of startups and/or partnering directly with them. Today, most progressive banks around the world have a fintech partnership going, or it is in their immediate plans. In India, Axis Bank was the first to establish a dedicated innovation lab. Named “Thought Factory”, the lab will have an accelerator to enable the Bank to collaborate with the startup ecosystem.  Bank of Baroda, on the other hand, chose to take the alternative route by stringing together a series of partnerships with fintech companies, such as CreditMantri, Power2SME, IndiaLends and Fisdom. So did Yes Bank, which inked a whopping 36 fintech partnerships and RBL Bank, which tied up with several new players in remittances, including Oxigen, ItzCash and NuvoPay. As is evident from these examples, payments take the top spot in bank-fintech collaboration. Now, the Government’s renewed resolve to usher in a cashless economy is expected to give further impetus to partnerships in the area of digital payments. One may infer from the presentations made at HDFC Bank’s Digital Innovation Summit that banks are also looking at areas such as artificial intelligence, branch automation, marketing, security, location-based solutions, analytics and quality assurance, for striking up partnerships.       Regardless of the area, the motives for partnership remain the same. From the banks’ perspective, allying with startups allows them to tap the latter’s innovation talent, technological expertise and unique, disruptive business models. It’s clearly a great way to accelerate innovation, which is often stifled by their legacy environment, conservative, risk-averse culture, and shortage of talent. Their fintech partners are equal beneficiaries, gaining immediate access to the banks’ massive customer base, deep financial resources, and expertise in managing risk and compliance. The benefits of collaboration are undeniable, but they are not guaranteed. It is very important for a bank to figure out the right reasons for collaboration, for instance, identifying gaps in its capability that are best bridged by partnering with a startup. Both the bank and fintech partner must make the necessary changes in culture, attitude and behavior for keeping the partnership running smoothly. This might be easier said than done given that a typical bank and startup have very different cultures, philosophies and practices.  They also have distinctly different technology environments, with the startup having none of the legacy baggage that is found in most banks. Banks will find it quite tough to renew their landscape to co-exist with their partners’ shiny new environment. But if they get it right, the mutual gain will far outweigh any pain along the way.       The author is Associate Vice President & Head – Finacle Product Strategy at Infosys