In 2020, few people view paying a friend or family member $20 for last night’s dinner over Venmo as something extraordinary. Actions like these, by now, already seem like an ordinary function of daily life, like starting your car from the warmth of your house, or your phone reminding you when it’s time to wish your mother a happy birthday.
But it wasn’t long ago that the transaction mentioned above was, in fact, quite revolutionary. Since then, financial technology, or fintech, has steadily invaded more channels of modern life, changing the ways in which payments are made, finances are accessed, and disrupting the traditional financial and banking industries forever.
Initially, it was reasonable and expected for traditional banks to view fintech companies as intruders and threats to be snuffed out. Today, though, there is a trend towards more diplomatic, collaborative efforts as some banks are cleverly strategizing ways to capitalize on the ever-expanding presence of fintech.
We’ll cover a few of these below.
Data and Identity Security
Headlines reporting major data breaches have become so commonplace that there is a level of desensitization among the public: privacy, perhaps, is viewed now as a luxury.
But it shouldn’t be, and there’s much to be gained from offering a future where privacy and the protection of that privacy is a right.
Several fintech companies offer services to help track and respond to ever-increasing breaches, making the process much more effective for both the consumers and the banks that possess their information.
Breach Clarity, for example, monitors every reported data breach in the US and then advises consumers on the best course of action to take in response. Notifying individual consumers of these breaches proved to be an issue until Breach Clarity began integrating its data protection services into banks’ digital banking platforms.
As identity protection continues to be an important marker of financial health, banks can continue to look towards partnerships like this to enhance their connectivity and trust with their customers and open up new revenue opportunities.
A study conducted by Accenture in April of this year yielded staggering results: only 14% of consumers who experienced a financially impactful life event in the past five years sought help from their bank. The precise reason for this low percentage of consumers trusting their banks is contested, but consensus suggests much of it stems from the fallout of the 2008 recession, and, over a decade later, only a third of consumers report having high confidence in their banks.
Conversely, 75% of consumers report trusting the technology sector. Here lies the opportunity for banks who connect with respected fintech companies to offer services. Partnering with a reputable fintech company for an app, for example, can help engender trust and loyalty among a customer base.
Wealth Transfer Management
Consider this statistic from Cerulli Associates, a Boston-based global research and consulting firm: Boomers will account for 70% of the $68 trillion in wealth that will be transferred by US households over the next 25 years.
As posited by Forbes, many banks may be far too concerned with losing management of a portion of that massive figure listed above instead of the opportunity of capturing the management of the transfer itself.
Traditionally, the wealth transfer process is complex and arduous for consumers, and they’d prefer not to spend time and money just to get the money that’s coming their way. A few notable fintech startups, Atticus and Trust & Will, in particular, are set to remedy this pain point with simple, user-friendly, and affordable digital services for probate, estate settlement, and estate planning.
Forbes argues the benefits of bank partnerships with fintechs in this instance as twofold. One, banks help to generate a new stream of revenue. Two, facilitating wealth transfers can better position banks to further manage the money after it’s transferred.
This is but a brief overview of potential benefits banks can reap from smart partnerships with fintech companies, and, looking forward, it is likely that the number of opportunities will only increase. Currently, fintechs represent approximately $1.6 trillion in domestic payment volume, and the compound annual growth rate (CAGR) of payment volume generated by fintechs is expected to soon exceed 80%.
Find this article helpful? For a deeper dive into the relationship opportunities between banks and fintech, follow this link to a podcast on the topic from the PaymentsJournal Podcast.