Banks Vs. FinTechs: The ‘Coopetition’ Phase Is Here - Featured Image

Banks Vs. FinTechs: The ‘Coopetition’ Phase Is Here

By Fortis |

Greg Cohen is the chief executive officer of Fortis, a leading integrated commerce platform.

When fintechs first began disrupting the financial services space with a digital-first, personalized delivery approach that traditional banks couldn’t match, some observers thought it was a zero-sum game with the banks losing in the battle for the customer. In the early days of the competition, fintechs, which were lightly encumbered by regulatory oversight and flush with venture funds, gained a reputation for innovation in providing key services bundled with disruptive experiences. But the banks had stability, an existing client base, traditional capital sources and a broader array of financial solutions to offer.

The battle was on. Each side pressed its advantage, with fintechs adding more financial services to their portfolios and banks playing catch-up on the innovation front with digital transformation initiatives.

However, in the current economic climate, both fintechs and regional banks are facing headwinds. Valuations have come back to planet earth, the cost of debt has risen substantially and many solutions have been uncovered as “interesting” but not transformative. Fintechs are now narrowing their focus instead of trying to be everything to all customers. They are conserving cash and, in many cases, even laying off staff and taking other cost-cutting measures. Regional banks are facing their own liquidity and capital issues in the wake of the failures of Silicon Valley Bank and First Republic and are discovering a whole new world of regulatory oversight and capital requirements.

Larger banks appear to be taking an aggressive posture, looking for opportunities to acquire rivals and, in some cases, even technology. Meanwhile, pressure on regional banks and fintechs continues, and both must find ways to navigate the new world. I believe a whole new mindset is evolving. The banks and the fintechs will still compete, but a cooperation-competition hybrid is emerging—”coopetition” is probably the right word for the next decade.

The State Of Innovation In Financial Services

Economic uncertainty and the prospect of dramatic increases in regulatory oversight have quieted innovation in the financial services market recently, but fintechs and banks are still making moves. Apple recently debuted a high-yield savings account for Apple Card users. Leveraging its partnership with Goldman Sachs to expand activities in the banking ecosystem, Apple now allows users to manage their savings accounts in their Apple Wallet. In March, Apple launched Apple Pay Later with Goldman Sachs, delivering their own buy now, pay later offering.

Conversely, it was reported by The Wall Street Journal that Bank of America, Wells Fargo, JPMorgan Chase and other banks are developing digital wallets to compete with services like PayPal and Apple Pay. The battle between fintechs and traditional banks is still ongoing, but it’s unclear how these attempts to move into rivals’ territories will pan out.

In my experience, banks have historically found it challenging to execute tech initiatives, and fintechs are finding it more difficult to expand in the current regulatory and economic environment. As fintechs find capital harder to come by and look for lower-cost distribution, and as banks continue to evaluate the future and innovate, it appears to be a great time for alignment and partnership.

The Role Of Embedded Commerce

I have found that embedded commerce lives at the intersection of the players in the financial transaction ecosystem, bringing together buyer, seller, financer and transaction. Most consumers are familiar with embedded payments through apps like Uber. When you get a ride via Uber, you don’t have to transfer funds from a digital wallet or hand over a card for the driver to swipe; thanks to embedded payments, everything happens seamlessly in the background.

Embedded commerce creates that same level of seamlessness extended to other financial services, including lending, deposits, payment processing, etc. (Full disclosure: My company offers these services, as do others.) In an embedded commerce model, businesses like retailers can integrate these capabilities by adding them as a layer to their software infrastructure to deliver a seamless customer experience. Fintechs and banks alike are trying to play a key role in the evolution of embedded commerce, as it often leads to a greater financial services relationship with customers.

The Coopetition Solution

To solve challenges for businesses, both large and small, and to continue to deliver a seamless customer experience through innovation, I believe all the parties involved in facilitating embedded commerce will need to find ways to coexist and work together. “Coopetition,” where historical competitors now come together to deliver an all-encompassing solution and cooperate to deliver a seamless experience, is the new answer.

Going forward, fintechs will need access to capital and distribution channels, and banks will require the innovation fintech brings to the table to meet customer expectations. Increasing regulatory pressures are likely to distract both parties, which will only add incentives for banks and fintechs to work together—they’ll need each other’s expertise to navigate through the challenges.

What started out as a battle between banks and fintechs has evolved over the past several years, and current conditions are moving both sides toward coopetition, which I believe will pave the way for a better customer experience.

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