THE INNOVATIVE fintech firms that have revitalised the financial services sector now rely on finding a partner from the traditional financial institutions in order to succeed.
The World Fintech Report 2018 from consulting firm Capgemini and corporate networking website LinkedIn found that more than 75 per cent of fintech firms cite collaborating with incumbent firms as their primary business objective.
This represents a paradigm shift for the fintech sector, which once sought to overthrow the established order in financial services.
More than 55 per cent of fintech firm executives surveyed said that gaining visibility, achieving economies of scale, earning customer trust, and establishing a better distribution infrastructure were crucial reasons for partnering with traditional financial services firms.
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Although fintechs have raised nearly $110bn (£79bn) since 2009, the report found that most are likely to fail if they do not secure effective partnerships.
“With more than 75 per cent of fintech firms identifying their primary business objective as collaborating with traditional firms, it is essential that both fintechs and traditional firms transform their business models by collaborating to drive innovation while retaining customer trust,” said Anirban Bose, head of Capgemini’s financial services global strategic business unit.
“Without an agile and committed collaboration partner, both traditional and fintech firms risk failure.”
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There have been an increasing number of tie-ups between fintech and financial services firms. For example, City heavyweight Goldman Sachs is acquiring a number of innovative start-ups through its online lending platform Marcus.
However, Rhydian Lewis, chief executive of UK-based peer-to-peer lender RateSetter, warned last year that fintech firms should be cautious about collaborating with banks as they could lose more than they would gain.
“There is an emerging consensus that collaboration between fintech firms and banks is the next phase, but it can be a valid business choice not to go down that route,” he said at the Innovate Finance Global Summit in London last April.
“In fact, every hour spent going down the business-to-business route is an hour lost to the end consumer.”