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Luca Enriques, Wolf-Georg Ringe, Bank–fintech partnerships, outsourcing arrangements and the case for a mentorship regime, Capital Markets Law Journal, Volume 15, Issue 4, October 2020, Pages 374–397, https://doi.org/10.1093/cmlj/kmaa019
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1. Introduction
Amid global competition to build the perfect financial ecosystem, governments worldwide are seeking ways to best harness the potential of new financial technology firms. These fintechs were once seen as ‘disruptors’, potentially displacing established banks and paving the way for more innovative business models. More recently, both types of players have begun to appreciate various forms of collaboration.1 The willingness of consumers to switch from traditional banks to newcomers had probably been overestimated, and this has reinforced the case for collaboration rather than directly enticing customers away from the established players.2
Partnership arrangements between banks and fintech firms may take on various forms, including simple joint ventures, but they may also involve more advanced technology-based ways of integrating new business models or services in the established bank’s portfolio. The main reason for the proliferation of partnership arrangements is the many advantages they bring to both parties. When cooperating with an established bank, fintechs can take advantage of certain banking services or infrastructure, which saves them significant costs and decreases time-to-market. With a bank’s cooperation (and licence), they can develop and test products and bring them to market without the need to apply for a separate banking licence, while at the same time developing their own brand and enjoying direct client access. Moreover, access to client data brings them opportunities with respect to entering new markets and offering innovative products. Hence, such collaboration boosts fintechs: they can compete with banks by offering services without having to build all of the products and processes that would ordinarily be needed from scratch. At the same time, as banks feel obliged to digitalize their business models as they search for new clients, many new market segments are opening up for fintechs and third-party providers. Fintechs can offer specialized services to, or build up the infrastructure of, a bank. In addition, collaborating with bigger market players earns reputational benefits and know-how transfer, thereby helping fintechs to increase their market share.
