Financial services turn to FinTech partnerships for next wave of investment


FINCA International launches FINCA Forward fintech platform

Financial services companies are prioritizing collaboration and direct engagement with FinTechs, particularly for payments technology, according to a new report by law firm DLA Piper – Digital Transformation in Financial Services.

  • 61% OF FINANCIAL SERVICES BUSINESSES PLAN TO COLLABORATE WITH FINTECHS TO IMPROVE SERVICES
  • 41% PRIORITIZING INVESTMENT IN PAYMENTS TECHNOLOGY
  • APIs AND OPEN BANKING MOST EXCITING AREAS FOR INNOVATION
  • CRYPTO ASSETS AND TOKENS EMERGING AS INSTRUMENTS TO WATCH
  • BARRIERS FOR COLLABORATION: 82% OF FINANCIAL SERVICES BUSINESSES WORRY ABOUT CYBERATTACK

The ambition to gain access to a range of innovative technologies and business models, while maintaining a core offering, is radically shifting the model for how financial services organizations and FinTechs engage with one another. Collaboration can take multiple forms. 29% of survey respondents are planning to engage with FinTechs via a range of partnerships, collaborations or joint ventures. A further fifth (19%) plan to invest in FinTechs, either directly or through their corporate venture capital arm, and 13% plan to acquire or buy FinTechs on an outright basis.

The report, based on an international survey of more than 270 international financial services companies, including retail banks and FinTechs, also showed four in ten (41%) view payments technology as the primary area for investment. The introduction of Open Banking and Application Programming Interfaces (APIs) are transforming the way financial services companies are engaging with FinTechs, with the evolution of payments technology being the industry’s main focus. This development correlates with the finding that APIs and Open Banking is viewed as the most compelling area for innovation (24%), followed by payment platforms and infrastructure (18 percent) and real time payments (15 percent).

Martin Bartlam, International Group Head of Finance & Projects and Global Co-chair of FinTech at DLA Piper said:

Payments technology is set for profound transformation in this new era for the financial services industry. This concentration of investment in payments tech makes sense in today’s digital era, as it represents the interface between financial services and its client base, so is likely to be highly impactful on a number of levels, from customer experience to transactional efficiency.

Martin continued:

Financial services companies are also recognizing that in order to achieve their ambitions of creating a digitally transformed and highly compelling proposition, driven in part by PSD2, true and embedded collaboration with FinTechs is the order of the day.

The report also highlights not only the impact of changes on existing payments instruments, but the rapidly growing recognition of new instruments such as crypto assets and tokens. 15% of all participants in the research are currently offering or evaluating offering crypto to fiat currency conversion and 17% of surveyed asset managers having developed or are planning to develop a strategy for cryptocurrencies and other digital assets.

Challenges

Whilst collaboration is viewed as the best approach to innovation, the survey highlights several barriers and challenges to partnering. Top of the list for retail banks is their own procurement and approval processes – almost a third (30%) said this was the biggest challenge to partnering with FinTechs. For investment banks, insolvency is the primary concern, with 23% scoring this is as their top challenge to partnering with FinTechs.

Uncertainty around cybersecurity measures, differences in culture, potential for insolvency and regulatory compliance also pose similar hurdles, with 82% of financial services organizations worried about a cyberattack. Regulatory and compliance obligations are limiting almost three quarters (74%) of businesses from utilizing disruptive technology and business models.

Global Co-chair of FinTech and partner at DLA Piper, Anthony Day commented:

There is no question that companies must continue to evolve their digital capabilities to survive. While there is strong evidence to suggest we are entering a period of unprecedented acceleration in the digitization of financial services, there are a number of regulatory and procurement obstacles to navigate. And while it appears the will to collaborate is there, there is most definitely room to develop a clearer understanding of how financial services companies and FinTechs can more effectively work together in complex, regulated markets.

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Financial services turn to FinTech partnerships for next wave of investment

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