“Coopetition,” the positive-sum game of cooperating with a competitor, may sound like another corporate buzzword. In reality, it describes the current dynamic between traditional banks and fintechs. Established banks and financial institutions are realising that the fintechs they once considered disruptive startups are becoming bigger players and can directly compete with them and they are here to stay. Banks have also recognised that they can unlock new high-growth opportunities by working with fintechs, helping them to capitalise on opportunities and new customers and be agile to new technological innovations.

Payment transactions are no longer solely managed by incumbent banks and financial institutions but by a complex network of neobanks, platforms and fintechs, all collaborating to deliver a better payments experience for businesses and customers alike. The adoption of technology has been driven by fintechs’ focus on the customer experience and their ability to quickly adapt to changing demands. The result of that is a whole new underlying infrastructure that is rapidly changing the financial ecosystem.

Mutual-trust partnership

Based on the learnings and adaptations over the last decade or so, banks have become more open-minded to working with fintechs. Established fintechs now prioritise robust risk management, stringent compliance and controls that meet global regulatory standards. Trust, the cornerstone of any successful long-term partnership, is built through these rigorous compliance frameworks. Fintechs not only meet regulatory requirements but also adapt to the evolving landscape as new use cases emerge. As they expand into new markets and verticals, the complexity increases, making continued investment in compliance and transparent communication essential for maintaining trust with banking partners.

While fintechs continue to innovate and make financial services more accessible, they also face the challenge of an evolving financial crime landscape. Balancing rigorous regulatory compliance with a seamless user experience and scalability is crucial. Fintechs often adopt a collaborative approach to banking relationships, emphasising trust, industry insight and mutual benefit. This involves staying deeply informed about both current and upcoming regulations across the various markets they serve.

Rising barriers to entry

Despite the strong risk management and compliance measures that are put in place in order to be a reliable and trustworthy partner, working with fintechs can still be considered a big step for traditional banks. Yet those that embrace collaboration with fintechs are often more adaptive to change, with many of those waiting on the sideline facing an increasingly high barrier to entry to the new technological era of finance and payments.

For banks that have yet to partner with fintechs, there are many pros and cons to consider before making the pivot. To name a few: owning direct relationships with the end users, preserving margins, and building the ability to scale. The vision needs to be guided by what particular opportunities the bank would like to go after by partnering with fintechs. The bottom line is, banks must invest in technology to stay relevant and competitive in the market. How such investments are made to serve their direct customers better as well as to enable partners like fintech to expand their reach is ultimately a strategic decision that banks have to make.

The most successful banks are those that innovate and embrace collaboration, while those that delay may find they have missed their opportunity by the time they are willing to enter a partnership with fintech.

A path to innovation

Traditional banks have a wealth of experience, a comprehensive understanding of the financial sector and a robust global network. Their expertise in regulatory compliance and industry knowledge is invaluable. However, they often grapple with complex, outdated technological infrastructures that are not easily discarded due to the associated risks and costs.

Fintechs, by contrast, operate without the constraints of legacy systems. They start with a clean slate, employing contemporary infrastructures that are simpler to update and maintain. They can view financial services from a novel angle, enabling them to trial new technologies and swiftly operationalise their innovative concepts, particularly in niches where they can establish a competitive edge.

The essence of such partnerships lies in a mutual goal to deliver streamlined financial services to customers and for banks to access a wider customer base in new markets and verticals. These collaborations are indicative of an increasing demand for financial solutions that blend the adaptability and speed of fintech with the security and reliability of traditional banking. The benefit for banks is an enhanced service offering that can adapt to the fast-paced nature of modern commerce, providing customers with efficient, secure and cost-effective financial transactions.

Moreover, these partnerships mean the range of products and services that can be offered by a financial service is greatly enhanced by a network of global banking partners. At Airwallex, the deep local knowledge and institutional expertise of our local partners have been significant in helping us uncover new market opportunities, expand our geographical payments coverage, and reduce costs by connecting to local clearing networks.

The financial industry will forever be connected to regulatory changes, shifting cultural dynamics and evolving technologies. To that end, fintechs and traditional banks now more than ever need to continue their “coopetitive” partnership to ensure they are meeting the needs of their customers and businesses moving forward. Utilising the advantages of both new and legacy financial institutions means innovation can be achieved and implemented on a global scale. It is truly a win-win situation for all involved.

Vivien Cheung, Head of Financial Partnerships, EMEA at Airwallex