Why Banks and Fintechs are Stronger Together

As a bonus, banks now had access to an energetic pool of talent that had come up through the ranks of the fintech culture, a breed that was singularly focused on creating faster, easier experiences for the customer.

For fintechs, the advantages were equally compelling. Partnering with banks provided instant credibility, a vast customer base to tap into and financial backing that opened the door to the capital they needed to scale their operations. And again, a bonus: The banks could guide them through the labyrinth of financial regulations, something the startups had found daunting.

With these factors at play, recent research reflects the trend. According to the 2024 FIS^® Global Innovation Research¹, which surveyed 2,000 financial firms and corporations, nearly half the financial institutions surveyed indicated that they are already or will soon be utilizing fintech solutions such as digital banking (43%), regulatory technology (46%), managed services (47%) and open banking (45%).

Exercising caution

If you’re considering a potential fintech alliance, you will want a partner whose technology not only complements, but also enhances your own. However, the integration of different IT systems is challenging, potentially leading to operational disruptions. As part of that, it is important to determine if the fintech you’re teaming up with has the necessary scale to handle a large volume of transactions without performance degradation.

Integrating systems also increases vulnerability to cyberattacks, so you’ll need to assess the cybersecurity maturity of your potential partner. Compliance, another big concern, requires a diligent look at the fintech’s adherence to all relevant financial regulations. For example, if the proposed partnership involves lending or credit services, you must understand and manage the additional credit risks this introduces.

Of paramount concern, though, is the handling of data. The phenomenal rise of fintechs has occurred because of their keen ability to spot hidden opportunities within existing data and create new value propositions. While commendable, their approach to utilizing that data has often been unconventional at best, risky at worst. As fintech products are launched, gain market share and begin to scale, issues arise around the transmission, storage and use of data. That is why it is essential to keep the care and handling of data top of mind. Find out how the fintech is applying data and what safeguards are in place. Remember, no matter how your partnership is constructed, the regulators will likely see you as the liable party if something goes wrong – and so will your customers.

Seizing untapped opportunities

With the hypercompetitive nature of retail banking, coupled with its high costs and low margins, you may be among the multitude of banks looking to the lucrative business banking side for growth opportunities. As you define your strategies, consider how the right fintech partner could accelerate your success. Whatever specialty you wish to pursue – agriculture, commercial property management, food services, manufacturing or professional services, to name just a few – there are fintech providers that have carved out a niche.

Among other untapped areas for potential fintech alliances, consider the highly profitable area of personal wealth management, where artificial intelligence is being used to tailor services to individual life stages. Fintechs are also a driving force behind embedded finance, the practice of integrating financial services directly into nonfinancial businesses.

2025 and beyond

According to Statistica, the average number of fintech partnerships for U.S. banks was 2.2 in 2020, a number that rose to 2.3 in 2021.² More recent numbers are unclear, but some estimates go as high as six to 10 fintech partnerships per bank on average. Where those numbers go from here remains to be seen, but one thing is certain: the regulatory environment will play a big part, especially as it applies to open banking.

One open question with bank-fintech partnerships is, “Who owns the customer: the bank or the fintech?” If regulators determine that the bank owns the customer, it follows that the liability for mishandling of consumer data falls to them. This means that the bank will be compelled to increase its rigor around careful data handling and security. If it turns out that the fintech owns the customer, and therefore the liability, the banks will be less inclined to pursue partnerships and instead compete for that business on their own.

Beyond the regulations, however, other market conditions could work for or against the formation of bank-fintech partnerships. Consumer demand for digital services is not going to slow down, a factor that will continue to fuel alliances. On the other hand, economic downturns or rising interest rates could lead to a more conservative approach to partnerships on the part of banks.

Market forces will always shift, but it is safe to say that bank-fintech partnerships will continue to grow. The banks that have been the most successful in managing these alliances no longer view fintechs as competition; rather they see them as accelerators to certain parts of their businesses.

¹FIS, Global Innovation Research 2024 surveyed 2,000 firms across financial services and other industries in the U.S., U.K., Singapore, Hong Kong and Australia.

²Statistica, Number of bank and fintech partnerships in the U.S., 2019-2021.