What Is the Future of Fintech Engagement?

Banks and Fintech Engagement

Banks may be wobbling slightly on their commitment to fintech engagement. According to CCG Catalyst’s 2022 US Banking Study, which includes the perspectives of 127 C-level bank executives surveyed between November 2021 and February 2022, 43% of respondents said working with fintechs is an integral part of their business strategy, but that’s down three percentage points from last year. Meanwhile, 34% said they work with fintech providers on a one-off basis as needed, up from 28% in 2021’s survey. This data suggests that banking institutions in the US may be pulling back a bit on their fintech aspirations, becoming more wary of engaging widely with such partners.

There are a couple of reasons why banks might be growing more discerning when approaching the fintech community. The first is that fintech startups (and neobanks in particular, which represent a major potential partner pool for banks) have struggled of late in critical areas like compliance and fraud prevention. Such problems have even led some merchants to stop accepting cards issued by certain neobanks. That’s thrown up a warning sign for banking providers who aren’t interested in taking on the risk that they may fall afoul of regulators by getting involved with the wrong partners. And second, some banks may simply be finding that integrating fintech engagement into their overall strategy is too difficult, requiring major shifts when it comes to technology, people, and operations that the organization isn’t readily prepared to support. For many banking executives, the combination of that difficulty and the recent troubles facing fintech startups could very well be throwing water on a previously roaring fire.

Bluntly, this is likely all getting worse. We ran our survey back in the winter — since then, tech valuations have evaporated, private capital has tightened, and big bang fintech failures have become a harsher reality. We are in an even crazier environment than we were back then, when signs of what was to come were just beginning to bubble under the surface. As such, trepidation at the intersection of banking and fintech is quite likely even greater than it was before. The point of this discussion is not to scare anyone, nor is it to suggest that banking executives should go out and abandon their fintech engagement plans. Fintech startups brought (and will continue to bring) desperately needed innovations into this industry. Rather, the goal is to convey the dire need to approach the fintech sphere with a well-defined strategy and, above all, a critical and trained eye. Truthfully, most banks still want to engage — just 2% of respondents to our survey said they had little to no interest in working with fintechs. It’s really about how exactly that happens and with whom.

For a long time, this looked like a betting game. And all of the horses were dazzling. But it’s past midnight now. The magic is waning. It’s understandable that many spectators would pull back. Those that win out in the end, though, will likely be the ones who stayed and figured out how to approach the opportunities out there in a methodical way. In doing so, you may kill two birds with one stone, as a good roadmap can not only mitigate risk but also goes a long way in thwarting some of the aforementioned organizational issues plaguing many of these institutions, as well.