The rise of fintech companies has put pressure on traditional banks to innovate and evolve to remain competitive in the financial sector, as customers now have aspirations and expectations beyond conventional financial services, whether for individuals or businesses.
This significant presence of fintech in the financial industry is reshaping the competitive landscape and compelling banks to adapt by offering technology-driven services. However, this transition is not easy for banks; it comes with challenges, including the difficulty of moving away from long-established regulations and the high costs associated with building these types of technologies from the ground up.
Considering this, it can be said that rapid transformation and building technology may not be the best approach for banks to compete with Fintech companies in the financial services sector. For many banks, partnership and collaboration are the preferred strategies to achieve 3 key goals:
- Adopt modern technology and access meaningful innovation without having to build it from scratch.
- Optimize services and make them technology-driven.
- Keeping up with customers’ aspirations for fast technical solutions and services with minimal effort and cost.
What types of partnerships can banks take advantage of to improve their financial services?
There are 4 types of partnerships that banks can enter into with Fintech companies to improve their position in the competition within the financial sector.
- BIN sponsorship
This type of partnership is based on the fact that banks grant fintech companies the ability to create payment cards using the Bank Identification Number (BIN), an identifier used in card-related transactions. Under this sponsorship, the sponsoring bank provides the partner company with a license and permission to issue payment cards, process payments, and offer bank-related financial services. This setup allows the fintech company to operate under the regulation of the sponsoring bank without becoming a bank itself.
In 2023, the global fintech market based on BIN sponsorship is valued at $295 billion, highlighting a valuable opportunity for both banks and fintech companies.
Banks can realize several benefits by offering BIN sponsorship to fintech companies:
Adding a new revenue stream: Banks can earn fees from fintechs for providing sponsorship and processing transactions.
Access to a new customer segment: Through fintech companies, banks can reach unbanked customers or those who lack access to traditional banking services due to their location or the nature of their work.
- Referral
This allows banks to offer modern financial services by referring interested customers to fintech companies and earning a fee for each successful referral, without the need to build the service from scratch.
This type of partnership adds a new service to the bank’s offerings without the burden of managing the service itself. It enables the bank to provide modern solutions to its customers, enhancing its competitive edge.
The benefit of this type of partnership is mutual for both parties, as the bank gains in two main ways:
It can offer new and innovative services to customers without the need for in-house development.
It realizes financial gains from referring customers to the fintech company.
The Fintech company benefits from expanding and attracting bank customers and offering its services on a larger scale.
- White-Label Partnership
In this type of partnership, the bank purchases fintech solutions from a fintech company, customizes them, and offers them under its own brand. The bank maintains control over managing internal resources, such as marketing and support, to ensure a seamless experience for its customers.
- Joint Venture Partnership
Joint ventures are a significant step in enhancing the culture of innovation within banks. By developing new solutions and exchanging ideas with fintech companies, banks can achieve an integrated model for financial services that combines their experience and stability with the innovation and modern technology provided by fintech companies.
In this type of partnership, both the bank and the fintech company share responsibility and control over the service, working together to optimize the customer experience.
Conclusion
It can be said that partnerships between banks and fintech companies have become a vital strategy for enhancing banks’ ability to adapt to the demands of the digital age and compete in the financial sector. Through various types of partnerships, banks can offer innovative, technology-enabled services without needing to build the technical infrastructure from scratch. This contributes to improving the customer experience and meeting customer expectations. With this approach, banks can keep pace with the rapid shifts in the financial sector and sustainably enhance the value of their services.
We look forward to discussing potential collaboration and developing tailored solutions to elevate your services.
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