September 30, 2016

Fintechs: Collaborators or bank Acquisition Targets?

For some time now, banks have been collaborators with fintech companies. Indeed, that collaboration has driven the story banks have told about their increasing utilization of technology for their customers. However, a recent study by IDC and SAP indicates that, while the collaboration model is still alive and well, with one-third of banks considering fintech companies their collaborators, a surprisingly high percentage - close to 25% - see fintech companies as potential acquisitions.

Thirty-three percent of banks see fintech as collaborators, while 25% see them as potential acquisitions.

Despite the fact that the report indicated a pivot, Garnet feels that opportunities in fintech are well established enough that it is likely that more than 25% of banks would be involved in a partnership with fintechs, even if they don't end up purchasing one. Banks have moved toward the technology that streamlines both services and costs to customers for some time now: in paperless banking, smart ATMs, and remote check deposit. Fintech offerings such as completely online banking, automated investment advice, and peer-to-peer lending harmonize with and augment these offerings.

Globally, 60% of banks looked favorably on partnership with a fintech.

Partnership or Buyout: Global Differences

That said, there were notable differences in global regions on the question of collaboration or acquisition. Banks in the Asia-Pacific region were the most likely to view acquisition as the strategy going forward. Thirty-one percent of the banks in the Asia-Pacific region consider fintechs acquisition candidates.

After Asia-Pacific, North American banks were the most likely to see acquisition targets when they looked at fintech firms, at 30%.

On the other end of the scale, banks in Latin America were less likely to be candidates for fintech collaboration, with just 38% considering fintechs as potential collaborators.

However, banks in Europe, the Middle East, and Africa (EMEA) are even less likely. Only 36% of the banks in EMEA viewed fintechs as potential collaborators. Why? The answer is simple. EMEA banks are highly likely - 30% - to view fintechs as competitors, as therefore as a threat, not a way to augment their business.

More Acquisitions and Collaborations Likely

The percentage of banks acquiring fintechs is likely to rise going forward. Banks that have been partnering with fintechs have been testing the feasibility, costs, and consumer popularity of fintech services. If the test proved successful in the bank's parameters, buying a fintech allows the bank to more fully control the service and to establish its brand in it.

Banks have been moving steadily toward provision of electronic services, which underlies their partnerships with fintechs.

The percentage of banks involved with fintechs is also likely to climb upward in the future. Working with a fintech can take many forms, including loan purchases, white label origination, and underwriting. It's simply good business for banks.

If your organization is interested in partnership with a fintech, a loan sale advisor such as Garnet can help. We are well versed in bank requirements and the fintech ecosphere. We can assist with making the appropriate compliant partnerships.

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