Up to now, startups in the financial services sector, known as fintechs, were mostly seen as threats to established banks. But that view is changing.
Banks increasingly see the small, innovative companies as partners – and many fintechs are seeking to cooperate with traditional financial institutions.
In the long term it is “certainly even more important to work together with fintechs,” said the head of Deutsche Bank, John Cryan, at Handelsblatt’s annual Banks In Transition conference this week.
Fintechs bring in new ideas, and we contribute our experience with customers and supervisory agencies. John Cryan,, Deutsche Bank CEO
“We complement each other excellently,” Mr. Cryan continued. “Fintechs bring in new ideas, and we contribute our experience with customers and supervisory agencies.”
Mr. Cryan cited Deutsche Bank’s collaboration with the Hamburg-based startup figo in aggregating financial data. The collaboration will allow customers of Deutsche Bank to use an app on their smartphones to access their accounts at other banks.
Urs Rohner, chief executive of Credit Suisse, expects that fintechs will bring far-reaching changes to the industry. He said it is matter of facilitating the “conformance to regulatory requirements.”
But it is also clear that established banks must react, because fintechs are developing a wide range of services that make banking easier across the board.
They set up alternative sources of financing for companies and private persons, for instance. They create technologies that replace bank advisers. And a few even have their own banking licenses.
In short, fintechs are involved in the entire value-creation chain of financial institutions – but in different ways.
Cooperating fintechs offer solutions that can improve the processes or offers of banks — for example, with account-changing services like FinReach and FINO, or identification services such as IDnow and WebID. These fintechs, in fact, often depend on collaborating with banks.
But others are attacking existing banking business. A prominent example is N26. The Berlin startup, which until recently was known as Number 26, offers free checking accounts that can be managed by smartphone. The company has more than 200,000 customers, primarily in Germany.
Automated asset managers like Scalable Capital or peer-to-peer lenders such as Lendico also number among new rivals to traditional banking.
Still, more banks see the advantage of working with fintech upstarts.
“Whenever we find a technology to be convincing, we quickly decide whether we want to take over a firm, cooperate with it or develop the technology ourselves,” explained Martin Zielke, the chief executive at Commerzbank.
The president of the DSGV savings banks association, Georg Fahrenschon, is ready to work with fintechs, “to develop attractive customer applications and import them into our interfaces.”
In addition, the savings banks seek to develop or purchase new offers themselves.
“With 50 million customers, we possess – in contrast to our competitors – the necessary mass for our own digital ecosystem,” said Mr. Fahrenschon.
A few large savings banks are currently working on a smartphone banking app called Yomo, short for Your Money. They intend to throw down the gauntlet to N26.
Some banks already have innovation centers to test new ideas, or they finance fintechs that have just gotten started.
The French bank BPCE, for instance, purchased Munich-based online bank Fidor, in what is considered one of the biggest fintech deals in Germany.
It is often difficult for young fintechs to grow on their own and open up new markets. Especially because in some areas, competition among fintechs is fierce.
In the meantime, Germany is bustling with several providers of payments from one cell phone to another.
Many new fintechs, therefore, believe it’s best to cooperate with banks.
“The role of fintechs is to develop ideas and test them on the market,” said Tim Sievers, head of the German startup Deposit Solutions.
With Deposit Solutions, investors can use “call money”— or loaned money that is repayable on demand — and fixed deposits at various banks. Anyone engaged in “call-money hopping” doesn’t have to register with each bank in order to receive favorable terms.
Deutsche Bank is already working with Deposit Solutions. It is only possible to have a big impact on the market “by cooperating with banks that already have the customers,” said Mr. Sievers.
Whether banks and startups compete or not, the crucial issue is that digitization and innovation be achieved in Germany as a financial location, said Levin Holle, department head at the federal finance ministry. “That is important for the survival of the industry. We need both parties in order to succeed.”
Mr. Holle noted there are already many collaborations between the two.
But banks should give careful thought to which partners they work with and what added value they can achieve, said Frédéric Brunier, a banking expert at Accenture Strategy consulting.
“Up to now, I don’t see that banks are actually earning money with fintech collaborations,” he said.
Mr. Brunier emphasized that banks don’t need be the first to jump on the fintech bandwagon.
Mr. Zielke of Commerzbank was even blunter: “The danger posed by fintechs tends to be exaggerated at the moment,” he said. “On the other hand, the potential of established banks to transform themselves is greatly underestimated.”