Banks and fintechs grow closer as winning customers toughens

Once at each others throats for business, financial rivals increasingly working in harmony.

PUBLISHED : Thursday, 16 June, 2016, 6:20pm
UPDATED : Thursday, 16 June, 2016, 7:36pm

Financial technology start-ups, or fintechs, are gradually starting to work more closely with banks in a marked shift for the sector which effectively came into existence to challenge traditional financial institutions, according to experts.

Many fintechs started out by promising to disrupt the banking industry with products ranging from peer-to-peer lending to mobile payment services.

But high operating costs and building a business without having the help of an established brand are now pushing them to work more closely, as opposed to against the older industry names.

They’ve been forced into collaboration with fintechs because of the fact they’ve realised customer acquisition is incredibly hard
Neal Cross, DBS’s chief innovation officer.

“They’ve been forced into collaboration with fintechs because of the fact they’ve realised customer acquisition is incredibly hard,” said Neal Cross, DBS’s chief innovation officer.

In Asia, despite there being large numbers still not served by banks, cooperation between the two rival camps is also growing.

Winning new customers is also cheaper in Asia, he added, and so fewer are being forced into cooperating.

Total global investment in fintechs last year reached US$22.3 billion, a 75 per cent rise on 2014, according to a report by Accenture and CB Insights.

But investment into fintech firms seeking to collaborate with the financial industry soared 138 per cent to represent 44 per cent of all investment, up from 29 per cent in 2014, the study found.

A separate global survey by Accenture of more than 300 bank executives has found just over half (52 per cent) expect to work with digital partners in the next two years.

Cross said fintechs, including the spending-tracker app Moven, had changed their models to license their technology to banks, or have started signing other forms of agreement.

Moven has so far inked licensing agreements with Westpac in New Zealand and Toronto Dominion Bank in Canada.

In Singapore, DBS has signed up with peer-to-peer lending platforms Funding Societies and Moolah Sense to snare small businesses that don’t meet their lending requirements, Cross said. Once the small businesses prove they can repay loans, they can later be considered by the bank.

Cross said such cooperation between financial institutions and fintechs could follow models ranging from licensing agreements to revenue sharing, or be run on an exchange of value basis.

Simon Loong, chief executive of Hong Kong-based online lending platform WeLab, said his start-up is working with a dozen banks in mainland China, and he sees local banks warming to the idea of collaboration.

He describes WeLab is part of a second generation of fintechs that are developing new technology to improve existing business models that can be applied within established banks.

“This second generation is more of a technological innovation.

“We have tools on top of the traditional form of credit underwriting, using the latest technology as we do with big data,” Loong said.

WeLab’s technology allows it to approve loans as quickly as 21 seconds, while 74 per cent of traditional loans are approved within 24 hours, Loong said.

While WeLab is looking into further collaboration with financial institutions, Loong said it will maintain its brand, as its position as an underdog appeals to younger customers.

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