Global banks are increasingly looking to partner more fintechs rather than build technology in-house.
According to research 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 plug into fintech platforms, with just 6% preferring to build in-house. In Europe, 73% want to connect to fintech platforms, and just 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 deploy new digital capabilities more easily.
The survey found that only 20% of banks feel they are currently ahead on their digital journey, with 54% stating that they believe they are behind.
Isabel Fernandez, executive vice-president of lending at Finastra, said that uncertainty, high inflation, fluctuating interest rates and recessionary risks are putting banks under pressure to drive operational costs down while continuing to improve customer services.
“Our survey demonstrates the recognition from banks that they cannot navigate these waters alone,” she said. “They are instead opting to partner with fintechs, with a preference for plugging into a platform of integrated fintech solutions, to help them adapt quickly while reducing costs.”
Banks need to act now as competition increases in the finance sector, with the ability to plug into financial services platforms driving more competition. More and more non-banking firms, including retailers, are using banking-as-a-service (BaaS) platforms, which gives them the ability to embed financial products in their offerings using systems already approved by the finance regulators.
To date, the adoption of financial products embedded in non-banking services has largely been in the retail space, where, for example, consumers are offered credit when making online purchases.
A survey of 1,000 consumer-focused businesses in the UK and Benelux region, from BaaS supplier 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, with another 38% considering using BaaS this year. The most common BaaS offered was foreign exchange (48%), buy now, pay later (48%), small and medium-sized enterprise lending (47%), and loyalty schemes (46%).