Startups stand to gain from partnerships
At DealStreetAsia’s PEVC summit on 30 September 2016, CEO of DBS Group, Piyush Gupta, made sure to highlight that financial services incumbents are still in a solid position to serve, and that FinTech startup firms need not necessarily be at loggerheads with them.
Piyush is far from the only advocate. His sentiments are in line with various industry leaders like UBS, Ernst & Young, and Accenture. Contrary to a binary outcome of “disrupt or be disrupted” like most tech advocates would say, it is more probable that the outcome will lie on a continuum.
Indeed, we are seeing varied and interesting responses from Financial Institutions all around.
- Spanish banking giant, BBVA, has been on an acquisition spree of online-only banks, looking to strengthen their value proposition in the SME space by integrating new business models and systems that appeal to the SMEs of today. In return, the acquirees enjoy greater financial firepower than otherwise could be achieved organically./li>
- Singapore-based OCBC, DBS and UOB have all launched FinTech accelerators, in hopes of nurturing the next generation of startups.
- DBS went the extra-mile and set up a partnership with local P2P lending firms MoolahSense and Funding Societies. This move allows them to reach clients they would not normally be able to finance.
- Major banks all around the globe have joined the R3CEV blockchain consortium. The purpose of this collaboration is to design and deliver advanced distributed ledger technologies to the global financial markets.
The argument for collaboration is not without its merits.
- Incumbent financial services firms have solid existing customer bases:
Where startups need to spend money on customer acquisition to achieve scale, large banks already have a captive customer base. If legacy issues and compliance matters are mitigated effectively, this provides startups a viable go-to-market strategy, and strengthens the network effect required to truly make the impact sought by aspiring FinTech firms.
- Financial Institutions are still trusted more than new FinTech Firms:
Peer-to-peer lending giant, Lending Club, has seen non-performing loans grow. This is partially due to the fact that the data-reporting functions of alternative lenders like Lending Club tend to be delayed. The lack of timely data reports allows customers to take out loans with a number of providers around the same time. Traditional financial institutions have established procedures in place to mitigate risks that unregulated FinTech firms might pose. Working together, banks can reap the benefits of financial inclusion, while FinTech firms may leverage on the incumbents’ established reputation.
- Financial Institutions have much to offer in terms of resources:
The threat of running out of capital is a very real threat that FinTech startups live with every day. There might come a day when VC appetite for funding FinTech firms dissipates, and capital for expansion cannot be raised. Partnering with an existing financial institution mitigates this risk by providing an additional avenue to receive funding. Furthermore, skilled and highly-qualified professionals are more than willing to join financial institutions to further their careers, while the same cannot always be said for startups. Partnerships allow startups to leverage on a pool of highly qualified labour to propel the expansionary efforts, and the prospect of being an acquisition target is also part of the agenda.
While it is true technology is bringing about profound changes to one of civilization’s oldest professions, they are far from being prey on the run from the predatory disruptors like many advocates would have you believe. Think ecosystem, not food chain.