How can fintech startups and incumbents collaborate for mutual benefit?

FinTechs are among the most high risk of industries, with long incubation cycles, mainly due to the regulatory, security, privacy, scaling and institutional partnership and integration challenges. Investments trend to be high, as is the cost of experimentation, and the profitability horizon is farther away than many other B2B sectors. In such an environment, technology disruption and regulatory changes are big risk factors, and so is much more dynamically changing customer behaviour. I remember Intuit having the vision back in 2012, to take on the up and coming startups such as Square and Xero more out of respect than fear.

I consider that fintech startups and incumbents can collaborate for mutual benefit in business transformation by establishing strategic partnerships. Likewise, these startups offer innovation and agility, while incumbents contribute expertise, resources, and an established customer base. Collaborating can drive the adoption of new technologies, enhance the customer experience, and enable a quick adaptation to market trends, benefiting both parties in the evolving financial and organizational landscape.

Fintech has its edge but these are the key challenges I found in my observation - Developing trust in a mass customer base - Most promotion is given away for customer acquisition and customers leave as soon as the promotion is over - Weak revenue generation model with customers. - Manage the performance, security, and cost of the IT system cost. - If startup then always start with limitations. - If got VC, managing the investor expectations, pressure and protecting the core values of the business model.

Fintech ecosystems are evolving into vibrant networks of collaboration among startups, incumbents, investors, and other stakeholders. Through partnerships, alliances, and open innovation platforms, fintech firms can leverage complementary strengths and resources to drive mutual growth and innovation.

Fintech startups and incumbents can leverage each other's strengths by combining agility and innovation with established trust and resources, creating a more robust and scalable financial ecosystem.

In my experience, collaboration between fintechs and incumbents can bring many benefits. a) Accelerating innovation: Combining the agility of fintechs with the robustness of large banks results in innovative solutions that quickly meet market demands. b) Access to new markets: Fintechs can help traditional banks reach a wider and more diverse customer base by expanding their service offerings. c) Improved efficiency: Jointly developed solutions can optimize internal processes and reduce operating costs, benefiting both parties.

Collaboration between FinTechs and incumbents have obvious benefits of competing together based on adjacent strengths and capabilities. For example, Banks and Loan aggregators. But it also comes with risks and incompatibility. Especially in bureaucracy and decision making speed. If governed and managed well, the benefits can outweigh the challenges, leading to mutual growth and long term partnerships providing stability to the FinTechs and predictability to the incumbents.

Here the top 3 collaboration benefits - - Fill in the blanks: A fintech startup can be the digital addition for the service model of an incumbent. - Digital product and Revenue: A fintech startup can be the digital addition to the revenue model of an incumbent. A partnership can bring additional revenue to the incumbent. - Technology and Data advisory and partnership: Most of the fintech is far ahead of the incumbent in terms of capability in data and tech. So an incumbent can get advisory support or even resource to develop /improve different tech solution.

Collaboration between fintech startups and incumbents can drive significant value by combining traditional financial expertise with innovative technology, ultimately enhancing customer experiences and accelerating digital transformation in the financial sector.

Rather than viewing collaboration as a one-off partnership, both fintech startups and incumbents can benefit from ecosystem orchestration strategies.

There are many forms of collaboration but in my personal experience these three are very effective - Fight or flight: First of all, the fintech and also incumbents leadership constantly reevaluate their ability, position, and future of the company. Because this a very rapidly changing industry. So they can move away from this very traditional approach. - Partnership: Then focus on what can bring value if this partnership could happen for the Service mode and revenue model. Example - By asking what additional services can we provide to our customer? What additional revenue stream can we great from this partnership? - Acquisition: Successful in partnership then consider about acquisition and make them part of the larger family.

Collaboration between fintech startups and incumbents can drive innovation, leveraging the agility of startups and the resources of established firms. This synergy can lead to enhanced customer experiences and accelerated market growth.

Beyond traditional partnership models, fintech startups and incumbents can engage in co-creation initiatives to develop innovative solutions collaboratively. Co-creation involves bringing together diverse expertise, perspectives, and resources to co-design and co-deliver value-added products or services.

Forming joint ventures is a neglected strategy. It enables both sides to take use of one another's advantages, share risks, and pool resources. These kinds of endeavors frequently result in creative solutions and quick expansion, which helps incumbents and fintech startups simultaneously.

From my experience leading an effective innovation program in an international payments technology company, it's a mix of many forms: Partnerships are ideal for combining strengths while maintaining independence, and fostering innovation through shared expertise. Investments allow incumbents to tap into cutting-edge technology and startups to scale with financial backing. Acquisitions can offer complete integration of technologies and teams for a more unified approach. Incubation provides startups essential support and resources, benefiting incumbents with early access to innovations.

Alignment of Vision: Fintech startups and incumbents must align on goals and communicate clearly Eg, Zelle, a joint venture by major banks, enables peer-to-peer payments. Effective Governance: Establish a governance structure for decision-making eg, BMW and Toyota collaborated on fuel cell tech despite industry competition. Leverage Complementary Skills: Utilize each other's strengths eg,: Netflix and Amazon collaborate while competing in different areas. Respect Differences: Acknowledge and respect cultural disparities eg, Fintechs bridging gaps in financial services for underserved populations. Measure Performance: Evaluate collaboration impact for continuous improvement eg, Monitoring customer feedback to enhance product offerings.

In the context of best practices in collaboration, I believe that fintech startups and incumbents can achieve mutual benefits by establishing strategic partnerships. Effective practices include transparently sharing knowledge and resources, setting clear and aligned goals, and maintaining open communication. Collaboration should also focus on flexibility and adaptability to seize emerging opportunities. By adhering to these best practices, both parties can maximize efficiency, enhance innovation, and foster a fruitful collaboration in the ever-changing financial and organizational landscape.

I can go a long list for this but here are the top practices that I follow in terms of collaboration - Think Win-Win - Thinking of service improvement or additional service creation for the customer - Think of additional revenue stream creation - Protection of data, security and privacy - Grow partnerships incremental way. - Develop a clear accountability matrix between two parties and what are rewards, and punishments for not committing to that on the ground. - Resource and knowledge sharing.

The whole point of a startup in a mature sector is to be disruptive. Without the legacy of years of compounded bureaucracy and risk-adversity startups have the opportunity to create value through innovation and agility. Like any form of collaboration the priority is to identify opportunities to align and find a safe space for both parties to benefit. For example, a mature organisation can provide access to established infrastructure which allows a startup to innovate without the investment of time and money required to compete directly. In exchange the incumbent benefits from rapid innovation for its customers which can generate new streams of revenue and help differentiate itself from established competitors.

Establishing a collaborative innovation lab, in my opinion, can successfully close the gap between incumbents and fintech startups. Everyone can explore new technologies and business models in a creative environment free from the limitations of their typical operating settings due to this specialized location that facilitates real-time experimentation and rapid prototyping.

In my personal experience, I worked with a fintech startup and a traditional bank to develop a partnership that helped the bank - Reduce their customer acquisition cost - Increase the sales of micro-credit loans - Increase the sales of credit card - Increase the sales of deposit product - That Bank could establish its digital banking front faster than ever in that market.

Fintech startups and incumbents collaborate by integrating services like PayPal and Visa for wider access, offering flexible payment solutions like Klarna and H&M, and providing digital banking services such as Ant Group and ICBC's offerings to SMEs.

My personal experience helping Grupo Financiero Inbursa's collaboration with Claro showcases the integration of traditional banking with digital fintech solutions. The Claro Pay initiative offers a convenient digital payment platform, allowing Inbursa customers to easily perform banking operations through the Claro Pay app. It highlights the trend in the financial sector where established banks are adopting fintech innovations to provide enhanced digital services and meet the evolving demands of modern customers. BTW @mauriciosantos masters it all.

Create "sandbox partnerships" where startups can test ideas using incumbents' data and systems. It's like a fintech playground with training wheels. Implement "reverse mentoring" programs. Pair startup CEOs with incumbent executives. The old guard gets a digital crash course; startups learn navigating regulatory mazes. Consider "API-first" collaboration. Incumbents open their systems, startups plug in their innovations. It's like financial Lego – endless possibilities, minimal integration headaches.

Considero que esta sinergia permite a las startups fintech aportar agilidad y soluciones innovadoras, mientras que los titulares proporcionan estabilidad, infraestructura y una amplia base de clientes. Al unir fuerzas, pueden aprovechar tecnologías emergentes, como la inteligencia artificial y blockchain, para mejorar la eficiencia operativa, ofrecer servicios financieros más personalizados y abordar de manera efectiva las demandas cambiantes del mercado. Es así que esta colaboración estratégica no solo beneficia a ambas partes, sino que también impulsa la evolución del panorama financiero en su conjunto.