When the fintech market first began, traditional banks barely paid it any attention, not believing that they could be truly challenged by small-time companies that nobody’s heard of before. Today, however, the situation is the direct opposite: banks worldwide face mounting pressure from aggressive fintechs and are struggling to maintain their positions in a market they once dominated.
Some forecasts indicate that in Europe alone, the fintech market’s value is going to go beyond $188B by 2029 — that’s almost three times today’s size ($63.5B in 2024). With fintech companies posing a very real threat, adapting to these shifting tides is a matter of survival for traditional banks.
And the situation is far from doomed: banks are actively exploring ways to embrace the change rather than fear it, and some of them look to partner with fintechs instead of fighting them. In this article, I would like to talk about why that can be good for the sector.
Banks vs Fintechs
The relationship between fintech and traditional banks is certainly competitive enough on the surface, with fintech companies usually having the upper hand in adopting or developing cutting-edge technologies.
Being on the smaller side compared to classic banks, it’s easier for these projects to readjust themselves on the fly and target specific pain points, like slow onboarding or need for tailored financial services. This flexibility means they can solve these issues with greater efficiency.
By comparison, many banks are still burdened by outdated infrastructure that’s expensive and complex to overhaul. Transitioning from these older systems to more advanced technology requires a lot of time and significant investment, not just in terms of software but also in training staff.
Moreover, banks operate within a heavily regulated environment, where every new technology or process they adopt has to adhere to strict standards. This can make modernization a lot slower for banks, as they need to ensure that any changes don’t lead to potential legal issues.
However, one thing to be said in favor of banks is that they have an advantage of long-standing trust with the clients, and that’s not something that fintechs can just replicate on a short timescale. For many consumers (especially those from the older generations), a well-established bank still feels safer than a freshly-launched startup.
Additionally, they have the advantage in sheer scale, as the long years of doing operations have left them with extensive user bases. A newly-established fintech company, on the other hand, always has to start building up its clientele from scratch.
These differences create an opportunity for the two camps to collaborate. Banks can adopt elements of fintech innovation to modernize their services while also leveraging their established reputations to bring these services to a broader range of people.
Exploring synergy over competition
The smartest banks have already wizened up to the things I’ve said so far, and are no longer trying to out-innovate fintechs on their own. Instead, they’re looking to build bridges — integrating fintech solutions into their operations or directly partnering with these startups to create win-win outcomes.
For example, big names like Citibank and Goldman Sachs have previously developed accelerator programs to support fintech companies and made investments to integrate their technologies.
And there are many ways to leverage fintech solutions to improve the efficiency of banks. Compliance automation tools, advanced risk monitoring systems, streamlined onboarding processes — all of these can reduce costs and improve client experience. Approaching things in such a way gives banks a chance to remain competitive without having to reinvent the wheel.
Partnerships like these can also expand a bank’s suite of services by introducing things like personal finance management (PFM) apps, investment options, or low-cost insurance solutions. Think of it as creating a “super app” experience, where customers can access a wide range of financial tools in one place.
How do consumers benefit?
Whether we’re talking about banks or fintechs, their end goal is to improve the customer experience. So it’s reasonable to ask at this point: how do their regular users benefit from them partnering up? As a matter of fact, the list of benefits is quite extensive.
First of all, there is broader access to financial services. Fintech companies are very good at supporting underserved categories of clients, such as small-time businesses or individuals with limited credit history. They also often make investment and credit products accessible to a wider audience by bringing down the entry barriers.
Traditionally, such services are geared toward clients with significant financial resources, which means that large groups of people were left out. Fintechs have changed this by introducing micro-investment platforms and providing loans to people who might not qualify under traditional credit scoring models.
By partnering with fintech companies, banks can tap into this expanded audience without developing entirely new infrastructures of their own. This would make them more competitive, while also supporting the broader cause of financial inclusion.
Another advantage to consider is the uptick in speed through automation. These days, consumers are able to do most things on their smartphones with just a flick of their finger, so they don’t like lengthy onboarding or delays in transactions. Adopting fintech instruments can help banks streamline their operations, provide services faster, and ensure fewer bottlenecks. It will also mean reduced operational expenses, allowing banks to serve clients at lower prices.
Finally, there is the higher level of personalization: by using AI and advanced data analytics, fintechs offer their customers tailored products to suit individual needs. Banks can also leverage this to their advantage, boosting customer engagement as the result.
Embracing unity for the future of finance
To sum up, banks that seek out partnerships with fintechs can position themselves as leaders in innovation while maintaining the stability their customers rely on. Fintech companies, on the other hand, can benefit from banks’ resources and infrastructure, allowing them to scale their solutions more effectively.
By working together, they will create a more efficient financial ecosystem, tailored to modern consumer expectations and allowing more people across the world to enjoy faster and more affordable financial services.
