Collaboration between up and coming FinTech firms and traditional financial institutions will be key to the future success of the financial services industry, according to a new report.

Emerging technology, increasing competition and changing customer demands are transforming the FS sector, found the World FinTech Report 2018. But it noted that many FinTech startups have realised that they will “struggle to succeed alone” and are seeking “symbiotic collaboration” with the traditional financial services firms they once sought to overthrow.

More than 70 per cent of FinTech executives surveyed for the study said their top challenges to partnering with traditional financial firms was the latter’s lack of agility, while traditional firms perceived negative impacts on customer trust and brand, as well as changing the internal culture, as their top challenges for collaboration.

The new report, published by Capgemini, LinkedIn and banking association Efma, found that financial services customers had greater trust in the brands of traditional firms versus those of FinTechs. But it noted that FinTechs, unburdened by legacy systems and “old-school culture”, had leveraged new technologies to rapidly respond to customer demands.

More than 90 per cent of FinTech firms said agility and providing an enhanced customer experience were key to their competitive advantage, and 76 per cent cited their ability to develop new products and improve existing products and services as critical to their success. But although FinTechs have raised nearly $110 billion since 2009, the research found that most are likely to fail if they do not build an effective partnership ecosystem.

At the same time, traditional financial institutions were adopting many FinTech customer service enhancements, while retaining core strengths including risk management, infrastructure, regulatory expertise, customer trust and access to capital, the report said.

Efma’s secretary general, Vincent Bastid, observed: “For a successful collaboration, both sets of firms will need to remain open-minded and keep a dedicated focus on collaboration. Financial institutions need to respect the FinTechs’ culture to avoid losing their agility, which is one of the major assets that they bring to projects. The next challenge will be to select the best fit FinTech with whom to collaborate.”

Anirban Bose, head of Capgemini’s financial services global strategic business unit, added: “With more than 75 per cent of FinTech firms identifying their primary business objective as collaborating with traditional firms, it is essential that both FinTechs and traditional firms transform their business models by collaborating to drive innovation while retaining customer trust. Without an agile and committed collaboration partner, both traditional and FinTech firms risk failure.”

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