BANKS ARE starting to partner with financial technology (fintech) companies as they realize the potential of these emerging firms in the financial services industry, McKinsey & Co. said.
In a paper titled “Synergy and disruption: Ten trends shaping fintech” sent to reporters on Tuesday, the global consulting firm said an increasing number of legacy financial institutions — or the incumbents — are realizing the benefits of combining their strength with fintech companies through partnership models.
On the other hand, fintech firms are seeing the value of partnering with the incumbents as they reach the saturation point in their native digital marketing channels and as banks’ compliance and regulatory competencies can be valuable to them.
According to McKinsey, a number of global banks such as JPMorgan and ING Bank are already on the partnership path with fintech start-ups.
However, China’s financial institutions tend to take a different approach as they partner with large technology ecosystem firms as opposed to smaller fintechs, it said. China’s four biggest banks have already partnered with at least one ecosystem firm in 2017. Through this, Chinese fintech ecosystems have scaled and innovated faster than their counterparts in the western world.
“In China, the most successful fintechs have been tech giants which have built financial ecosystems on the back of high-engagement consumer platforms,” McKinsey said, citing Ant Financial building on Alibaba’s e-commerce platform as well as Tencent providing digital financial services on its pre-existing social media platform.
Partnerships of financial institutions as well as fintechs are getting more common, as almost 80% of financial companies have entered into partnerships with fintechs, according to McKinsey Panorama.
Meanwhile, global venture capital fintech investment in 2018 has already reached $30.8 billion from the meager $1.8 billion in 2011.
Amid increasing partnerships, McKinsey said incumbents are starting to lead the charge to upgrade digital experiences in their core banking products to match services provided by fintech firms.
McKinsey noted that as legacy financial institutions are stepping up to improve their digital platforms, the better user experience provided by fintechs is no longer enough to capturing more customers.
“Today, most financial institutions have transformed their retail user experience, offering full mobile functionality with best-in-class design principles… Customers, as a result, require more reasons to switch to new fintech offerings,” it said. — K.A.N. Vidal

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