The banks do not want to develop fintech internally

Global banks are increasingly looking to partner with more fintechs rather than building technology in-house.

According to research conducted by East & Partners for financial services software firm Finastra, three quarters of banks plan to work with an average of three fintechs in the next 18 months

Globally, over half (56%) want to connect to fintech platforms, with only 6% preferring to build in-house. In Europe, 73% want to connect to fintech platforms, and only 5% want to build them themselves.

The global research of more than 700 banks revealed that globally 46% of banks want to do this to reduce operating costs and 43% want to enable them to implement new digital features more easily.

The survey found that only 20% of banks feel they are ahead of their digital journey, with 54% saying they believe they are behind.

Isabel Fernandez, executive director of lending at Finastra, said uncertainty, high inflation, fluctuating interest rates and recession risks put banks under pressure to reduce operating costs while continuing to improve customer service.

“Our survey shows the recognition by banks that they cannot navigate these waters alone,” she said. “They are instead choosing to partner with fintechs, with a preference to connect to a platform with integrated fintech solutions, to help them adapt quickly while reducing costs.”

Banks must act now as competition increases in the financial sector, with the opportunity to connect with financial services platforms driving more competition. More and more non-banking companies, including retailers, are using banking-as-a-service (BaaS) platforms, which give them the ability to embed financial products into their offerings using systems already approved by financial regulators.

To date, the introduction of financial products embedded in non-banking services has largely been in the retail sector, where, for example, consumers are offered credit for online purchases.

A survey of 1,000 consumer-focused businesses in the UK and Benelux region, by BaaS provider Vodeno and Aion Bank, found that 51% expected BaaS to spell the end of traditional banking, with 56% citing the cost of living crisis as a catalyst for its adoption.

It revealed that 39% of respondents had already implemented BaaS services and products, while another 38% were considering using BaaS this year. The most common BaaS offering was currency (48%), buy now, pay later (48%), lending to SMEs (47%) and loyalty schemes (46%).