The role of collaboration and partnerships in the success of the fintech industry cannot be understated. According to research commissioned by Finastra, three in four global banks plan to partner with an average of three fintechs in the next 12 to 18 months. While this signifies positive news for the industry, the research looks into exactly why banks are increasingly turning to fintechs.
Finastra gained responses from 783 interviewees across 260 banks in the UK, Europe, the Middle East, Asia Pacific, and the Americas, as well as 393 interviews with North American community markets banks and financial institutions.
The financial software provider revealed that the most significant proportion of respondents wants to plug into a platform of integrated fintech solutions (56 per cent). Only six per cent of these respondents would prefer to build these capabilities in-house. This trend was particularly prevalent in Europe, where the numbers were 73 per cent and five per cent respectively.
Some of the most prevalent motivations behind a greater number of banks looking to integrate fintech solutions were:
- Reducing operational costs (46 per cent)
- Deploying new technology with greater ease (43 per cent)
- Aligning more closely with evolving compliance needs (37 per cent)
Digital transformation has also remained a priority, with global institutions investing $367.6million on average in transformation in 2023. European banks are also investing substantially more than this: at an average of $886million.
However, while global respondents say they have digitised 47 per cent of their digital processes on average, only 20 per cent feel they are ahead on their digital journey, and 54 per cent believe they are behind. It also emerged that this feeling is significantly lower in the Middle East, where only 12 per cent of respondents feel they are ahead – with 62 per cent stating they feel they are behind.
Finastra research also found that banks are using fintechs to enhance the customer experience. When searching for a new fintech partner to improve customer offerings, global banks are prioritising online portals and banking channels (55 per cent), transparency across processes, such as providing the customer with real-time updates on onboarding progress (45 per cent) and improving end-to-end connectivity and value-add services (44 per cent).
Reducing carbon emissions is the primary ESG goal for 49 per cent of global banks, followed by board and management alignment on sustainability initiatives (46 per cent). These stats are similar for banks in the Middle East.
In Europe, a larger proportion (74 per cent) are prioritising reduction in carbon emissions, followed by settling on definitions and terms (67 per cent). In APAC, the main priorities are securing longer-term funding internally (63 per cent) and board and management alignment on sustainability initiatives (61 per cent).
Banks seeking fintechs
Isabel Fernandez, EVP of lending at Finastra, discussed the research findings: “In an environment characterised by uncertainty, high inflation, fluctuating interest rates and recessionary risks, banks are under an increasing amount of pressure to drive operational costs down while continuing to improve how they serve their customers.
“Our survey demonstrates the recognition from banks that they cannot navigate these waters alone. They are instead opting to partner with fintechs, with a preference for plugging into a platform of integrated fintech solutions, to help them to adapt quickly while reducing costs.
“The research also shows that ESG is continuing to expand throughout a bank’s internal operations and external offerings. At Finastra, we champion the idea that finance is open. Whether through our open platform for collaboration and innovation – FusionFabric.cloud – or our belief in open technology, mindset and culture, we are helping banks future-proof their offerings and drive a better future for the communities they serve.”
Martin Smith is the global head of markets analysis at East & Partner, the firm that conducted the research. Smith discussed his view on the revelations surrounding the decisions made by banks: “Major inflexion points in recent years have had, and are still having, a dramatic impact on how financial services are evolving. This is forcing institutions to reconsider how they manage risk, increase their agility, and fast-track innovation to evolve with new demands.
“We partnered with Finastra to better understand and showcase how banks are adapting to this environment. We believe that despite the challenges facing global banks, the industry’s focus on collaboration and driving ESG initiatives forward, highlighted by the research, will ultimately have great benefits for financial institutions and their customers, today and in the future.”