FinTech companies are developing solutions that are changing the way financial services are accessed, delivered and experienced. While some FinTech companies continue to primarily sell their solutions to banks (FinTech2Bank), many others are bypassing their traditional banking client base and offer their solutions directly to financial services customers (FinTech2Market). They go to market with innovative and cost effective offerings for specific financial lines of business like credit/lending services, payments technology and services and financial management services.
The FinTech2Market companies increasingly target the banking retail and small to medium enterprise market segments and threaten to eat into bank’s interest and non-interest incomes. Their technological prowess, product/service innovation, business focus, organizational agility and relatively smaller regulatory overheads present significant advantages over traditional banking industry incumbents.
To prevent themselves from being outplayed by FinTech, many banks, especially the larger Tier 1 banks, are increasingly engaging with FinTech companies with the aim to learn from and leverage FinTech capabilities and to avoid being left with no other option other than acquisitions at huge premiums. A preferred strategy for many banks so far has been to create startup programs that incubate FinTech business and technology. Some others have also set up venture funds to fund FinTech companies. Other alternative strategies observed include partnering with FinTech companies, acquiring FinTech companies early or launching their own independent FinTech subsidiaries. Additionally, while more banks appear to be engaging with FinTech2Bank companies, a significant number of them are engaging with FinTech2Market companies too.
From a geographical perspective, European banks have been very active in engaging with FinTech while banks in North America are at a distant second. Banks in Asia Pacific seem to be adopting a more conservative strategy where many collaborate with leading traditional IT firms to drive FinTech engagement.