The mutual incentive for banking and FinTech interoperability

“The bankers of tomorrow are technologists who enable banking experiences your customers will use across the digital landscape.”

This is the prediction of Brett King, the world-renowned futurist and author of the bestselling book ‘Bank 4.0’, which looks at the future of banking in the emerging, technology-embedded world of the 21st century.

From selfie-pay in China, through the introduction of facial recognition technology, to Africa fast becoming a block-chain driven mobile-payment first continent, digitization is happening in almost every sphere of global banking and capital markets.

The result? The monopolistic financial systems of the past are fast disappearing.

Pandemic-fuelled renewal

The impact of Covid-19 on banking will be felt long into the future, with the pandemic having accelerated an unstoppable transformation of their business processes and ushered in a new competitive landscape.

According to Statista, from 2018 to 2021, the number of FinTech companies in the EMEA region has nearly tripled.

By accelerating digital adoption, the crisis has proved to be a litmus test for banks’ digital infrastructure and made partnership with the FinTech arena essential.

From mobile banks and mobile payments between friends to AI-enhanced chatbots and anti-money laundering software, FinTech technological advancements are bringing banking into the digital age.

Blockchain and banking

Many major banks are now adopting – or if not yet actively thinking about – Blockchain technology.

They include:

• Goldman Sachs, one of the leading investors behind the strong stablecoin USDC by startup Circle
• J.P. Morgan, which stated in April 2021 that they are now using blockchain technology to help improve money transfers 
• HSBC which is now using Corda R3’s blockchain platform to enable its Digital Vault, a custody blockchain platform

Bank-FinTech partnerships

Fintech is bridging the gap between what traditional banks offer and what the modern consumer has grown to expect and there’s ample incentive on both sides for this interoperability.

FinTech companies are keen to partner with banks. They offer well-defined and stable client bases and the necessary capital to develop their services.

Banks have plenty of impetus too. Their customers now expect the type of seamless digital experience they are receiving from the retail sphere.

The new FinTech platform-based business models provides banks with new opportunities to do that – and more – either via their own channels or via a license structure.

Some shining examples are these:

Rabobank in the Netherlands: It has partnered with Digital Identity Service Provider (DISP) Signicat to launch a new digital identity service called Rabo eBusiness that aims to help businesses’ on-board customers more easily and digitize their operations, invoicing and supply chains.

HSBC: It has formed a strategic partnership with Tradeshift, the world’s largest business commerce platform. It now enables companies to manage their global supply chains and working capital requirements from one simple online platform, from any device.

US banking giant JPMorgan Chase: Its asset and wealth management unit has purchased San Francisco-based start-up OpenInvest, a platform that allows customers to customise their investment portfolios based on ESG metrics.

The Bank of America: It has acquired German healthcare-payment FinTech company Axia Technologies that focuses on facilitating secure patient payments to advance its payment solutions for healthcare clients. South Africa’s leading financial institution Nedbank: It has partnered with Mastercard and FinTech firm Ukheshe Technologies to launch Money Message. This is a payment platform that allows small and micro businesses to receive secure in-chat payments from their customers via WhatsApp.

While for now, these are mainly “plug and play” collaboration models, one thing is sure. Interoperability between banks and FinTechs is here to stay.