The relationship between big banks and financial technology startups
has evolved in recent years. First the banks were standoffish to
fintech, looking at the industry as a lightweight in a heavyweight ring
they’ve dominated for decades. Then the banks started to see fintech as a
threat, as the number of users of their online platforms grew. Today
banks and fintechs are striking partnerships and/or investment deals to
build fintech solutions together.
The relationship continues to mature, but how cozy the two sides will
become remains unclear, say some fintech startups. It depends on how
they work together, and consumers, over the longer term.
“I think the relationship will be more like frenemies. We need each
other,” Chantel Chapman, a financial fitness coach at Vancouver-based
fintech Mogo told a crowd at the
VanFUNDING 2016 conference in Vancouver
on Tuesday, put on by the National Crowdfunding Association of Canada.
“There’s a lot of talk about banks being disrupted, but disruption
doesn’t mean destruction. There are just going to serve a different
purpose,” she added.
Chapman points to companies like hers and Koho, which offer a no-fee
alternative to a traditional bank account, which sit on top of the
regulated deposit-taking institutions.
“The fintech company benefits because they don’t have to handle the
regulation side of things for those deposits,” she says, “but the bank
or the credit union still gets to do what they want to do, which is
collect the deposit so they can lend out money and make more money.”
“It’s a win-win situation,” Chapman says, pointing to examples like
Apple, which works with telecom companies to offer its iPhone products.
The problem banks have is that they still lag when it comes to
offering cheaper services to consumers, says Casto Pastoll, CEO and
cofounder of peer-to-peer player Lending Loop.
“The one thing, unfortunately, they’re still missing out on,
unfortunately, is delivering some kind of cost efficiency to the
consumer,” Pastoll says. “They’re still missing the point about making
it better for the consumer.”
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Until banks “get their heads around how the industry is going to
change as a whole,” he says companies like his are wary of striking
partnerships.
Trust is also an issue, especially among Millennials who studies have shown are wary of big banks.
Chapman says fintechs have an opportunity to come in “with a clean
reputation” and ability to speak to Millennials in a way that can
reinforce trust. That includes building a social contract with customers
by offering a product or service in return for taking and using their
data. At Mogo, in exchange for data, Chapman says they offer a free
credit-score monitoring product for users that open an account. They see
it as offering consumers, which provides customers with education on
their finances.
“It’s a focus on what are you giving of value to the customer,” Chapman says.
Daniel Eberhard, cofounder and CEO of Koho, says consumers trust
banks to hold their money, but where the trust often ends is when they
sell them products they don’t need or understand.
“There is this trust of ‘yes you are going to hold my money, but do I
trust you back to have my best interest at heart and to communicate
openly and honestly.’”
This is where have an opportunity to lure consumers, and where banks will need to catch up.
That said, fintechs are resting on their early-stage laurels.
“The tipping for Canada hasn’t even begun,” says Tabitha Creighton,
who is CEO of InvestNextDoor, a Crowdlending marketplace for small
business.
“On the topic of where banks and fintechs play, it will be
interesting to see how the banks do being part of fintech, as opposed to
seeing themselves outside of that engagement.”
She notes that banks often plan five-to-10 years in advance.
“Be sure that whatever we’re doing, they are already trying to figure out where that lead them.”
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