Last week, I had the pleasure to participate in a challenger session with Julian Sawyer (COO at Starling Bank) and Noemi Papp (Head of Digital & Retail, at EBF) at 6th Nextgen Payments Forum in Cyprus. The panel was in the hands of an excellent moderator Peter Oakes.

The title of this challenger session was: “Bank vs Fintech — Competition or collaboration”. Peter Oakes tried to throw a stick among the pigeons, like any good moderator, to build some tension in the discussion… it didn’t work.

We stuck together! I know, these animals on the photo are not pigeons… and the guy sure isn’t Steve, but you get the point, right?

All of us were convinced that simply put, most Fintech are eager to collaborate, and only very few have a model that can sustainably go in direct competition with banks WITHOUT any partnership with any other bank. I follow the same way of thinking.

On top of that we see that ‘Fintech’ is such a broad term these days. Noémi stated several times “banks are fintech”. Whether you agree or not, it sets a scene. In financial services you cannot survive without technology these days, so in a way everything is fintech.

Some will target financial institutions as their customers, others will go for the end-client, whether that is corporates of consumers. A partnership with banks is in most case a crucial element of survival for Fintechs. Some will do this for more reach, others look for technology or license, some others provide technology for banks, or sometimes they even do it for goodwill.

Essentially, most Fintechs exist because they believe they found a niche in which they they can do it better than the status quo. That is also why they need banks, as a client or as a supplier.

And so the discussion of the challenger session in Cyprus evolved to the question: “what is required for a good partnership?”

That is already a lot more interesting in days where everyone knows that the future is about working together.

I discussed this in another blog before.

It all starts with your identity as a Fintech: why do you exist and what are you looking for at a bank?

Know yourself

Just like in human relationships I believe you first need to know yourself, before figuring out who to cope with in the banking scene. You are often a young company with bright ideas, and a flexible vision, depending of what works and what doesn’t work. Only after you overcame your childhood you can start thinking about relationships (unless you purely look for a parent to take care of you on an early stage of course).

By the way, that is also true when applying for the right license at the NBB. Reinout Temmerman was pretty clear: or you come and defend your application well prepared, or it is better not to come at all ;).

Find out who you are looking for

As lot has been written on the difference between a Fintech culture and a Banking culture. As a matter of fact, these days people start saying ‘Fintech is a state of mind’. That is also what Noémi said ‘banks are fintechs’.

I don’t think I have to explain that. Thousands of articles and blogs have been written about that, so I suggest to take it one level lower.

One level lower you will find out that one bank is not the same as the other. Some banks are traditional players, who largely depend on a branch network, because their customers expects it. Others are more committed to the digital channels, like Starling or Hello bank!. A few other banks, like Solaris, are simply playing at the back and help you in setting up a bank yourself (you can read more about them here).

A different way to look at them is size. Do you need a big player with enormous reach, or a smaller player? That can also influence the attention you get in the relationship. This is another trade off you should make when figuring out who can make you stronger.

Find out what you are looking for

First you figure out who you are, what you like, what you are good at… After that you figure out who you feel comfortable with. Finally you find out how you like to interact with him or her.

What kind relationship you need to grow?

To bring it to the human metaphor again: are you looking for acquaintances, for friends, are you looking for friends with benefits, or are you looking for a strong, committed relationship?

As a Fintech you are happy just being an Acquaintance

This metaphor brings us to the APIs platforms. You need a connection with banks, but as such there is no need for a real friendship. You just like to be part of the network. For many this makes perfect sense.

This is the easy level: in terms of relationship management you only need to build a relationship with a platform, like LUXHUB or ibanity, to get connected to a whole portfolio of banks.

As a Fintech you look for friends

You have an offering that is built on services for which limited negotiations are required, but you like a foot in the door. This is what you are looking for when for example the PSD2 APIs, and a bit more, provide you with sufficient value.

Account aggregators are a good example. Banks are required to provide the APIs, and you can simply connect and consume. This can be the starting point to a better relationship. Today PSD2 APIs are limited to payment accounts. In Belgium that would mean you get access to current accounts.

From the moment you would also like to aggregate other accounts, you need to work towards a deeper relationship, let’s say…

As a Fintech you look for friends with benefits

The relationship gets a bit more complex. As a Fintech you get in touch with the business of a bank, and maybe even with procurement.

Relationship management become a key asset in your organisation. This relationship manager needs to figure out what kind of bank you should be looking for. Although most banks today have a pretty similar identity, some will be more open to relationships than others.

A Fintech that looks for friends with benefits, may be most interested in the ‘polygamous’ banks, who also give you sufficient attention.

What I mean with this is this:

Polygamous banks: some banks are monogamous, they stick to their existing relations, and they see no value in partnering with other parties. Although they be may up for a drink, at the end of the night, they seem to have abused you for the free cocktails and they develop the ideas themselves.

Polygamous banks are actively looking for new partners, they get excited by new ideas and to look for opportunities to extend their service offerings. This kind of banks are more open to collaborate.

They give you sufficient attention: for some of you a big bank make sense, but for others the smaller sized banks are a much more logic (first) step.

When will you get sufficient attention? That is when you can talk on a similar level: you both understand the business you work in, you share a similar vision and values. Pretty human, right? Well, that is what relationship management is all about at the end.

This is also where Julian of Starling stepped in the discussion: Starling offers all the services of a full-fledged bank, and they are built to serve, and to connect Fintech players. They don’t even have deposit account in their own name. Startling simply provides a marketplace where their consumers can find one of their partners that do offer accounts.

But maybe we are getting in the next phase here, which is…

As a Fintech you look for a committed relationship

You get in the DNA of the bank, with deep integrations that require a real understanding, sometimes a lot of patience and most of all commitment from both sides to make it work.

To some extend it also creates certain dependance of each other, which can create tension, but that is part of the game.

But it is worth it! At least for some solutions. Suppose you provide value added services for financial institutions, it is this level you need. Friends with benefits is no longer enough, relationship management gets even more important.

Relationship management will become a key asset in the future of financial services, but it will shift from the customer to other stakeholders, exactly because of this. Today banking should no longer be about breaking silos, but about breaking borders.

I guess there is still a future for consultants and advisors, but counseling services in case both parties feel pressure on a relationship, but they don’t want to give up yet.