A new report released today by the law of firm of Manatt, Phelps & Phillips, LLP shows that community and regional banks are very open to partnering with Fintech companies. The report is based on information gathered in a survey of 75 executives from banks, Fintech companies and private equity investors. While the survey size is very small the findings are still quite interesting.
The main thrust of the survey is that banks are far more open to partnering with Fintech companies than ever before. This is a trend that began many years ago and seems to be accelerating today according to this report. Here are some of the key findings of the report:
Banks are on board with fintech. At 81%, the overwhelming majority of regional and community banks are currently collaborating with fintechs. In addition, 86% of regional and community bank respondents said that working with fintechs is “absolutely essential” or “very important” for their institution’s success.
Lower costs + a better brand = a win-win. For regional and community banks, enhanced mobile capabilities and lower capital and operating costs were highlighted as the benefits of collaborating with fintechs. Fintechs named market credibility and access to customers in regional markets as the main benefits to partnering with banks.
Data security remains a challenge. Both banks and fintech companies are highly sensitive to the ways in which data is shared and secured. This means extra attention must be paid to cybersecurity when the two sides collaborate—especially given the cultural mismatch that can exist between them. Despite the optimism among banks for collaboration, preparedness is a large concern. Almost half of regional and community bank respondents said they are just “somewhat prepared” or even “somewhat unprepared” for this kind of partnership.
Regulatory concerns remain paramount. For banks and fintech firms, structuring relationships that are regulatory compliant, including, if required, prior regulatory approval, is critical to ensuring success and the opportunity to change the way financial services are ultimately delivered.
So, assuming this report is representative of the attitudes of all of banking we can expect far more collaboration in the future. I think this is good news.
Lending is moving online, that is an unstoppable trend. The reality is that the cost to setup an efficient online lending operation is high and smaller banks will find this a difficult cost to justify on their own. Even larger banks are seeing the advantages of partnering, maybe not so much from a cost perspective, but certainly from a speed and user experience perspective.
The one data point that I thought was fascinating was this: 88% of bank respondents thought that in ten years time the banking industry will see banks partnering with Fintech companies in a largely collaborative environment. This is where the industry is moving.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.