Successful Cooperation: What Banks and Fintechs Need to Consider
For some time now, traditional banks and financial service providers have been facing demanding challenges. They are in the midst of a technological upheaval and a change in customer needs. In addition, for several years now, more and more new market players have been flooding onto the market, so-called “fintechs,” which are capturing an ever-increasing market volume with new and innovative business models and products.
For a long time, these fintechs were seen as a direct threat and competition for traditional banks due to their high innovative capacity and the disruption potential attributed to them. In recent years, however, it has become apparent that both FinTechs and banks are more interested in cooperation than in competition. Current studies show that a majority (approx. 77%) of fintechs have already entered into a cooperation with an established company.
Both parties have gained valuable experience in recent years and a number of successful cooperations have been established. Particularly well known are, for example, the cooperation between ING and Scalable Capital or that of Commerzbank with Etoro.
Cooperation Between Banks and Fintechs
With their technical solutions, flat hierarchies and agile working methods (Desing Thinking, SCRUM, Lean Startup), fintechs offer an enrichment and supplement to the classic and conventional corporate structures of banks. In addition, fintechs are mostly very customer-focused and act quickly. For their part, banks can score points primarily with their established market position, customer trust, and broad customer base. Likewise, banks have legal expertise, competence in regulatory issues and access to the necessary back-end systems and corporate networks.
However, there are factors that can cause a cooperation between a bank and a fintech to fail, especially close collaborations. These can be due to the working methods as well as the mentality of the employees of the two companies. Start-ups thrive on flat hierarchies, the initiative of their employees, who can often make a lot of decisions themselves, and flexible, innovative and unconventional ways of working. The complex decision-making processes that often exist in banks, on the other hand, where a project usually has to go through several committees in order to be approved, tend to hinder cooperation because important decisions tend to be made too slowly. In addition, startups often have limited funds, which makes them dependent on bringing a prototype to market within a short period of time, which is then subsequently expanded and improved through customer feedback. Speed has a higher priority than perfection. This approach is often a challenge for banks, as they do not want to jeopardize their reputation with their customers and have the capital to carry out long development cycles to present a “finished” product to their customers. Consequently, banks often see no need to quickly launch a new product on the market. In addition, the internal processes of a bank are not designed for the kind of rapid development that a start-up is capable of.
Another frequent reason for the failure of a cooperation is structural differences or a different strategic orientation of the companies. For example, the marketing of the start-up by the bank is an enormous competitive advantage over other start-ups. However, banks often see a start-up only as an addition to their own product portfolio and want to continue to market predominantly their own products. Likewise, conflicts can arise when a start-up wants to digitize established and proven processes in a bank and make them more efficient through new technologies in order to successfully implement a new solution. The prospect of having to abandon familiar processes and replace them with the unknown may lead to resistance among bank employees, while the fintech’s employees will struggle to retain processes they consider unnecessary or outdated. These differences are particularly problematic if they are very large and cannot be overcome through sufficient communication. Here, the perception of cultural differences is also very unevenly distributed. For example, 90% of FinTechs perceive strong cultural differences, but only about 53% of banks do.
Another major issue is often the scaling of a project when it comes to integrating it into the entire bank. This can be, for example, the implementation of software in the core banking system or the digitization of the bank’s process flows. The decision for such an integration often drags on over a long period of time due to the aforementioned decision-making processes in traditional banks, while fintechs depend on quick decisions.
Another challenge that can arise in the course of a cooperation between a bank and a fintech is insufficient communication between the companies and between the employees. For example, internal bank decisions about the timeframe of the cooperation are not always communicated to the fintech, or the fintech is not kept informed about the progress of the bank’s decision-making process, so that it does not know whether and how the cooperation should continue. In addition, there is often a lack of a clear contact person. Although contact persons are often agreed upon at the beginning of the cooperation, since a cooperation with a fintech often affects several departments, it can still happen that responsibilities are not clearly assigned and the concerns of the fintech are passed on internally and the contact is ultimately broken off. The departure of the responsible employee can also lead to a loss of contact. If this is the case, the cooperation is difficult, especially from the fintech’s point of view. Due to the size of the bank, a cooperating fintech usually represents only a small part of the bank’s value chain and is therefore not necessarily of great importance to the bank. As a result, there is a risk that the fintech is not sufficiently involved in the bank’s decisions and that the fintech does not find a hearing in the bank for its own needs. This often leads to frustration on the part of the fintech and, under certain circumstances, can also lead to a failure of the cooperation.
Recommendations for Action
Thorough preparation of the cooperation is particularly crucial for successful collaboration. Fixed contact persons in both companies should be defined in order to create close communication and to communicate the needs and expectations of both companies. It is also advisable to obtain the commitment and support of the bank’s management level, as this can also help overcome problematic situations or difficult projects and ensure better cohesion between the two companies at all levels. In addition, precise goals should be defined and KPIs established at the beginning of the cooperation, so as to have a precise idea of the cooperation and quantitative goals for measuring its success. These can be, for example, user numbers, costs, but also the time frame of a project. In this way, it is also possible to check whether the cooperation is successful and whether it should be continued.
With regard to the cultural differences that can arise in a cooperation between a bank and a fintech, open communication is very important. The aim is to bring people from the companies together and to create a mutual understanding for one another as partners. For this purpose, it can be helpful to include the cooperation partner in one’s own decision-making process and in the design of the strategy. This makes it easier for the other party to understand what the processes are like in the company and how central decisions are made.
It is also important to create a suitable environment for cooperation. On the one hand, this is reflected in a shared physical environment, such as a start-up lab or start-up hub, where employees from the bank and the fintech work together in one place. But the legal framework also plays a major role in this context. Here, it is important to create a framework that protects the interests and values of both parties and creates a secure and trustworthy environment. For instance, it must be regulated that a software solution developed in-house or an intelligent algorithm is not used unlawfully by a contractual partner.
At the beginning of every cooperation between a fintech company and a bank, the first question is the reason for the cooperation.
A successful cooperation already starts with the selection of the right cooperation partner and a detailed and extensive preparation. Here, it is particularly important to develop a feeling for the partner and to understand how he thinks and acts. Furthermore, in the course of the preparation and the subsequent start of the cooperation, it is important to agree on and record clear, measurable goals. This makes it possible to check the success of the cooperation during its course and to adjust its design if necessary.
It is also necessary to consider possible cultural differences between the cooperation partners. Here, the differences lie particularly in the way of working and the mindset of the employees. Fintech companies have a faster and more agile way of working than most traditional banks, and their employees are usually more open-minded and more inclined to take risks. Banks often exhibit a high degree of formalization and have much longer decision-making paths than fintech companies. That is why good and open communication between the two companies is particularly important in a partnership. This helps to address problems openly and avoid misunderstandings or frustration.
 See Sudahl, M. (20 Sudahl, Michael (2017): Fintechs – vom harten Wettbewerber zum ergänzenden Kooperationspartner. Einsatzmöglichkeiten am Beispiel von Online-Finetrading, Finanzierung Leasing Factoring, Heft 3, S. 104.
 Oser, Elena/ Baumann, Kai (2018): Modelle zur Zusammenarbeit von Banken und FinTechs, Meilensteine und Erfolgsfaktoren für eine gelungene Partnerschaft. https://www.bearingpoint.com/files/Zusammenarbeit_Banken_FinTechs.pdf?download=0&itemId=530712
 Hirschfeld, Alexander/ Gilde, Jannis/ Walk, Vanusch (2021): FinTech, Startup Monitor.
 Sparkassen Innovation Hub, EY (Hrsg. (2020): Der deutsche Fintech-Markt, Wie Banken und Fintech kooperieren, S.51. https://startup.ey.com/wp-content/uploads/2020/03/UNITE-Banken-und-FinTechs-2020.pdf
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 PwC (Hrsg.) (2018): Kooperieren statt konkurrieren, FinTechs und Banken kommen zusammen. FinTech Kooperationsstudie 2018.