Banks and Fintechs: Better together
Old met new in the world of retail banking on July 28, as BPCE, France’s second largest banking group, announced the acquisition of the German digital bank and fintech pioneer Fidor Bank.
Founded in 2009, Fidor Bank has built a community of 350,000 users across Germany and the UK, who are rewarded for offering peer-to-peer financial advice and invited to participate in the social co-creation of products and services. The startup has also developed a proprietary technology platform – the Fidor Operating System (fOS) – which enables open and fast API banking, offering its 120,000 customers access to a wide selection of services provided by other fintech partners.
The news about BPCE inking a deal with Fidor came as no surprise. As I discuss in a recent report, the digital banks which have proliferated over the past few years – competing to win customers by offering more compelling digital customer experiences than those offered by established banks – are struggling to acquire large numbers of customers and reach profitable scale. Why? They operate on narrow margins, can’t sustain large marketing campaigns, and create limited perceived added-value for customers.
Fidor has done well since its launch, hitting profitability for the first time in 2012. The startup however made the decision to shift its business model away from just direct-to-consumer offerings, and now white-label its technology to financial institutions. The telecom operator Telefónica in Germany recently partnered with the fintech to launch a mobile banking service for its customers.
Fidor could now benefit from additional funds and scale. "Our growth made us reach the limits of our capital resources," Fidor CEO and co-founder Matthias Kroener told Reuters, adding that the deal with BPCE would enable them to reach the "next phase of growth."
Challenger banks won’t threaten established banks anytime soon. Yet, there is no doubt that banks realize faster innovation is crucial if they are to retain their market-leading position in the future.
The move by BPCE reflects the growing pressure on traditional banks to expand their digital services as customers increasingly use digital touchpoints to manage their financial lives – and France is no exception here, as our research shows. François Pérol, chairman of BPCE, stated that: “This operation constitutes a key step in the acceleration of the digital transformation of our group.”
In order to bring new digital propositions to market faster, many financial institutions are now considering collaborating rather than competing with digital disruptors. Digital banking executives have three options to consider: build their own solutions to compete with disruptors, buy them, or partner with them. To help you think through that process, Forrester has built an assessment tool, which I invite you to access here.
Yet, to ensure that collaborating with fintechs delivers more than just a marketing boost, you need to establish clear business objectives. Ask yourselves: What is the problem we are trying to solve? What are the services or capabilities that we need to offer to our customers? Could any of these startups help us acquire these capabilities at a faster speed that we could build internally?