Financial institutions and fintechs may be competitors in some cases, but they also hold the keys to the other’s success in others. As the pandemic upends consumer behaviors and drives economic uncertainty, FI-fintech collaboration is presenting new opportunities to both parties.
While it’s true that the digitization of payments and commerce has been slowly occurring over the past several years, the pandemic’s stay-at-home orders triggered a sharp uptick in consumers’ digital behavior.
What was once a convenience became a necessity as people turned to the digital channel to work, shop, learn, and manage their lives. Even older generations shifted to digital, prompting a need for organizations to solidify and sharpen their digital offerings. Payments, banking, and fintech were no exception. In many cases, the rapid transition has prompted collaboration between financial institutions (FIs) and fintechs to better serve customers of all stripes.
The Financial Life of the Digitized Consumer
According to research, consumers of all generations are going digital, with the greatest share of digital consumers falling into the millennial and Gen Z buckets. About 17% of senior citizens are using smartphones to log into their financial accounts at least once a week. Baby boomers are doing so at a rate of 38%, Generation Xers at 74%, and millennials and Gen Zers at 85%. Fidelity National Information Services (FIS) reports that there was a 200% jump in new mobile banking registrations in April of 2020, with mobile banking traffic increasing by 85%. As Paycheck Protection Program loans ramped up, many shifted to mobile banking simply because they wanted to more easily check the status of their loan — and more conveniently receive it with an online account.
In addition to the uptick in mobile account logins, customers are showing their cards regarding preferences for other digital services. Remote deposits and online account openings also increased — with double-digit month-over-month growth in some cases. As consumers put health at the forefront of their minds and seek more touchless experiences, ATMs are being abandoned in favor of mobile deposit. People are even looking for safer alternatives to in-person branches, including the ability to connect with a live teller on a secure channel.
This desire for digital banking has left some FIs in a lurch as they haven’t been able to translate some services to the online realm. Products like home-equity loans have been slow to digitize, though partnerships are already enabling the transition. In November of last year, BBVA USA teamed up with Prosper to offer digital home equity lines of credit. Thanks to Prosper’s technology, BBVA customers in Alabama, Arizona, Florida, Colorado, Texas, and New Mexico can now apply for digital HELOCs.
This trend towards mobile banking is the highest yet, which affords FIs a great opportunity to delight digitized customers. Whether or not they’re taking advantage of that opportunity is another story.
The FI-Fintech Collaboration Journey
The collaboration between FIs and fintechs is not new; however, the pandemic has shifted that relationship into new territories in a number of ways. Most apparently, the shift to digital has left many FIs and other traditional financial services providers in a bind as they lack the agility or digital prowess to quickly offer online or mobile services.
Fintechs, on the other hand, are flush with digital skills but may be bearing the financial realities of the economic downturn. Without a significant and loyal customer base to withstand the scenario and with venture capital funding shrinking, they are facing catastrophic outcomes. One survey discovered that nearly two-thirds of 1,000 tech startups didn’t have the capital needed to survive six months.
Between FIs struggling to find their digital footing and fintechs facing a stark economic outlook, the opportunity for collaboration has been ripe in the pandemic. Given the spate of large financial services providers that acquired a number of fintechs early last year, this collaboration appears to be a match made in heaven.
Fintechs are more agile and less burdened by regulations than FIs and FIs provide a path to sufficient capital and a mature customer base that can help weather the economic storm. Banks can become more operationally nimble, which a partnership with fintechs can provide. Fintechs are often able to quickly and seamlessly gather and analyze large sources of customer data to uncover insights that can optimize the customer experience.
In addition to the operational and economic sense collaboration makes, both parties should also consider the regulatory implications. While FIs are historically hamstrung by regulators, FI-fintech collaboration seems to be getting a nod from regulators who have been clarifying how regulations apply to these types of relationships.
The pandemic may have prompted a rise in collaboration, but the mutual benefits are likely to ensure that collaboration continues long after we move into a “new normal.” As FIs look to modernize infrastructure and fintechs look for some added financial stability amidst volatility, we will likely see this trend endure well into 2021 and beyond.
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