By Mike Azzara
Fintech-bank relationships take several forms—acquisitions, alliances, collaborations, joint ventures, strategic partnerships. And these partnering deals have been rising as fintech investment also rises—dramatically. According to KPMG International’s Pulse of Fintech, fintech funding more than doubled to $111.8 billion in 2018 from 2017’s $50.8 billion.1
Along with these dynamics, fintech-bank collaborations have shifted focus to services for small and midsize enterprises (SMEs), expanding from a previous consumer emphasis. As Harvard Business School Senior Fellow Karen G. Mills noted in a February 2019 interview, “Large banks and fintech providers are working on solutions that will dramatically change the options for small businesses.”2
Fintech-bank services already in-market generally fall into three categories: customer insights, client advisory services, and business process and operational improvement.
Mills noted that many fintech-bank collaborations are leveraging data analytics, augmented or artificial intelligence (AI), machine learning (ML) and other tools to drive more efficient, effective business operations and processes for SME customers. Managing cash flow, for instance, can be a challenge for any business. Bank-fintech partners now offer business portals and dashboards that aggregate and analyze data to help SMEs predict needs and proactively manage funds in their accounts.3
Other examples can be found in purchasing and expense management services. SMEs may wish to draw from bank-fintech suppliers who can help them control costs, and manage corporate expenses, such as when and how, or who, can use company credit cards. Fintech tools also are available to simplify the business loan experience, speeding access to capital. Other identification, verification and authentication tools are available to help detect fraud and to prevent the growing challenge of employee theft.
Blockchain technology also is increasingly surfacing for SMEs across all industries, in purchasing, supply chain, and “smart contract” services.4 Blockchain, with its promise of transparency and security, is beginning to displace paper and legacy electronic data interchange (EDI) processes that are more prone to human error.5 The distributed public ledger technology ensures the integrity and traceability of every level of a transaction, from sourcing and supply chain to customer site. Smart contracts— “self-automated computer programs that carry out contract terms”— can help reduce breached or broken deals, and lower costs, time, and effort for a business.6
To help SMEs avoid the complexity of piecing together multiple point products to build a holistic solution, fintech bundle solutions are emerging. Bundle approaches can offer AI/ML-based record keeping, identification, authentication, payment, and blockchain solutions support.7 With such an approach, banks can provide single and multifactor authentication so companies can be assured the client and the transaction data are secure, as well as automated account configuration, cloud storage, encrypted transaction data, and streamlined order creation and execution — among other capabilities.
Whether a business chooses a service bundle or assembles its own menu from several point products, streamlining operations in this way can result in more time to focus on the customer and business opportunities. And fintech-bank collaborations can help there, too, because customer insights and data analytics are new service fields emerging from fintechs and from their partnerships with banks. With these capabilities, SMEs are beginning to track and analyze many facets of customer attitudes, demographics, and behaviors. The resulting insights and predictive analyses can be used for marketing, promotion, loyalty programs and improved customer engagement.8
Also emerging are e-wallet services and cloud-based currency exchanges that span national boundaries and help manage foreign exchange fees. Fintech-bank collaborations can help SMEs manage multiple currencies, make payments, and view balances, all in multiple currencies.9
Fintech and traditional financial institutions also are creating new advisory services offerings. Some counsel enterprises on growth and opportunities, helping them to achieve business goals and use new tech products to help manage to their growth goals.10 Other advisories help enterprises understand and better equip themselves given changing regulations, and to navigate the requirements for customer privacy and data integrity, as well as the threats of cybersecurity.11
Fintech-bank partnerships are driving a proliferation of potentially valuable new financial services for SMEs. SMEs trying to sort through the new capabilities may be well served to weigh the risks and benefits—especially any new technology’s maturity—and rigorously match potential new services to their current and anticipated future customer opportunities.
Mike Azzara has covered business and technology issues for more than 30 years as a writer, editor, publisher, consultant and analyst for media brands, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. “The Pulse of Fintech 2018;” KPMG International; https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/02/the-pulse-of-fintech-2018.pdf
2. “Fintech’s Game-Changing Opportunities for Small Business;” Harvard Business School Working Knowledge; https://hbswk.hbs.edu/item/fintech-s-creating-game-changing-opportunities-for-small-business
4. “Why Blockchain Matters to Small Business;” Entrepreneur; https://www.entrepreneur.com/article/305853
5. “Will Blockchain Replace EDI? Yes and No,” Forbes; https://www.forbes.com/sites/forbestechcouncil/2019/04/03/will-blockchain-replace-edi-yes-and-no/#70c8834b47d7
6. “Smart Contracts Are the Future of Blockchain;” American Banker; https://www.americanbanker.com/opinion/smart-contracts-are-the-future-of-blockchain
7. “TD Bank Partners with Startup to Add Blockchain and AI Solutions to Investment Products,” Cointelegraph; https://cointelegraph.com/news/td-bank-partners-with-startup-to-add-blockchain-and-ai-solutions-to-investment-products
8. “9 Big Data Solutions for Small Business;” Business News Daily; https://www.businessnewsdaily.com/6358-big.data.solutions.html
9. “The world’s most trusted Payment Engine,” CurrencyCloud; https://mp.s81c.com/pwb-production/000001-partner/7730/documentation/15695_en.pdf
10. “For Banks, 2019 A Balancing Act of Fintech and SMB Customer Service;” PYMNTS; https://www.pymnts.com/news/b2b-payments/2018/ncino-bank-advisory-smb-2019/
11. The future of SME banking: Minds made for redefining financial services, EY; https://www.ey.com/Publication/vwLUAssets/EY-The-future-of-SME-banking/$FILE/EY-The-future-of-SME-banking.pdf