New survey from law firm Manatt, Phelps & Phillips reveals thousands of regional and community banks are adopting fintech solutions.
A new survey of regional and community banks, fintech firms, venture capital firms and investment banks has found that the vast majority of executives are optimistic about the future of collaboration between banks and fintech firms. Of the banking executives surveyed, 54 per cent described fintech firms as potential partners, while 89 per cent think that these sorts of partnerships will become ubiquitous in the next decade.
On the flip side of the coin, 58 per cent of the surveyed fintech firms see potential advantages to working with the banks – primarily as a means of tapping into the client bases of mid-sized and smaller banks. Potential benefits for the banks include improved customer service, enhanced mobile capabilities, lower capital and operating costs, and lower lending rates.
But bank collaboration is already well under way in fintech. 81 per cent of regional and community banks are already collaborating fintech firms, while 86 per cent of respondents said that working with fintech companies is either “absolutely essential” or “very important”.
The survey results also indicate that data security remains a major challenge for both banks and fintechs, meaning that extra attention must be paid to cyber-security when the two sides join forces. Almost half of regional and community bank respondents said that they are either “somewhat prepared” or “somewhat unprepared” for collaborating with fintech firms, with data security seemingly a major factor in creating that uncertainty.
“Despite the demand for mobile services, cybersecurity will be the chief concern as these institutions come together. Fintech opens numerous doors for traditional banks, but at the same time, it leaves the possibility of a cyber breach wide open,” said Craig Miller, co-chair of Manatt’s financial services practice.
While the results of Manatt’s survey echo wider sentiments within the fintech space, not all firms are convinced. Starling Bank, a recently licensed, digital-only bank in the UK, recently published a report suggesting that bank collaboration was steadily eroding customer centricity in fintech.
But Brian Korn, co-chair of Manatt’s financial service practice, points to existing examples of fintech-bank collaboration as the start of a wider trend: “In September, Radius Bank announced it would team up with online lender Prosper in an innovative deal to help make small business loans, a model that continues the collaboration theme demonstrated by other banks and lending platforms, such as JPMorgan Chase and OnDeck and Regions Bank and Avant. This is the beginning of a new trend that points specifically to an increasingly symbiotic environment."