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FinTech vs banks – competition or collaboration? And which is best for my business?

Financial technology is shaking up financial services – and it’s no secret that FinTech is on the rise. Even still, as a company, it’s easy to question whether banks and FinTechs are competing or collaborating. And how do you decide which is best for your small business?
February 23, 2022
3 min

Financial technology is shaking up financial services – and it’s no secret that FinTech is on the rise. Even still, as a company it’s easy to question whether banks and FinTechs are competing or collaborating. And how do you decide which is best for your small business?


Research reveals that the number of FinTech companies in the EMEA region has nearly tripled between 2018 and 2021. Studies also show that there are currently over 600 FinTech companies in Germany alone – and this is only set to increase.


The boom in FinTech, coupled with recent world events, has caused many organisations to sit up, take notice and reconsider how they do banking. During the height of the pandemic, at a time when the world came to a near halt, FinTech disrupted traditional financial services to streamline, digitise and drive banking forward.


From more straightforward tasks like moving money across accounts and applying for urgently-needed funding to more technically-intricate activities like crypto exchanges, FinTech has pushed boundaries to offer new, more accessible ways of banking.


FinTech’s customer-centric approach leverages new technologies like AI and cloud computing to streamline complex financial processes, innovate and adapt, and empower businesses to manage payments and financing faster. Anywhere.


Banking within regulatory frameworks

Comparatively, the legacy systems and regulatory framework traditional financial institutions  and banks must work within, often restrict their ability to harness new technologies and introduce seamless products and services quickly. 

Anti-money laundering (AML) regulations, which help banks combat the misuse of the financial system and deter financial crimes, are among the regulations banks must meet. As part of their AML programmes, four key areas must be covered:

  • Know Your Customer (KYC) – verifying identity
  • Customer Due Diligence (CDD) – assessing and detecting risk 
  • Customer and transaction screening – monitoring and controlling transactions
  • Suspicious activity reporting – scrutinising financial records  


EU anti-money laundering rules are some of the toughest in the world. And according to Europol, the EU’s agency for law enforcement cooperation, each year European banks spend €17.5 billion ($20 billion USD) on ensuring they’re anti-money laundering compliant.


Failing to meet AML regulations has serious consequences. In addition to facing steep administrative penalties and fines, non-compliant organisations can suffer a decline in credibility – and lose customers. 


Past financial crisis have shown that when banks fail, it creates far-reaching issues for the wider economy. Individuals and organisations lose money and confidence in banking drastically drops. However, under EU rules, bank failures are now resolved and funded entirely by financial institutions, not by taxpayers. 

Flexible financing helps SMEs 

An essential part of an effective AML compliance programme is a risk-based approach. But being obliged to assess in this stringent way can throw up barriers that prevent banks from lending to small businesses, drive stricter collateral requirements and increase funding costs. All of which inevitably widens the bank-loan funding gap for SMEs. 


The more flexible nature of FinTech regulations enable them to offer innovative, faster, user-friendly features. Undoubtedly regulations are required – and stricter regulations lead to lower risks. But in order to stay competitive, traditional banks must embrace FinTech to meet technological demands and improve the experience for users, including small businesses.  


Bank-FinTech futures – collaboration and cooperation

Open banking has transformed financial services by opening up access to data and enabling FinTechs to provide choice, rapidly develop new customer-centric products and services, and cultivate innovation. As such, FinTechs should not be seen as competitors to banks, but rather valuable partners. 


In 2019, open banking became mandatory in Europe via the EU’s Revised Payment Service Directive (PSD2). Under the directive, banks are required to share data, like payment and account information, with licensed FinTechs. However, banks still don't see the value in giving away quality data.. As a result, FinTechs turn to machine learning to gain insights and forecast more accurately.

Bank-FinTech collaboration provides insight into an evolving financial landscape. Partnerships also open up opportunities to engage with new customers and expand reach. Working together enables both groups to use data, explore and develop new technology and ultimately offer a broader range of features, services and products – tailored to customer needs. 

Some of the many benefits of Bank-FinTech partnerships include: 

  • Building and strengthening brand reputation
  • Offering broader features, like money management tools and simplified financing
  • Providing user-centric products, including intuitive online offerings and apps
  • Reducing costs and growing revenue through comprehensive digital services

Closing the FinTech-Banking gap

But getting the attention of traditional, sometimes bureaucratic, banking organisations can be a task in itself for FinTechs. Finding the right person to discuss partnerships with is challenging. And even when connected to the right person, FinTechs must compete with numerous other pressing priorities. This can be all the more challenging at the early stages of a FinTech’s journey.

Though banking systems can also be notoriously archaic, with many lacking Application Programming Interfaces (APIs), for example, the right FinTech can help overcome integration barriers. Patience is also crucial; rollouts and implementing new services and products typically take months or multiple quarters. 

Although the pandemic has caused some banks to already partner up with FinTechs, the call for banks to reinvent outdated business models has never been more important. 

Open banking initiatives and the revised Payment Services Directive 2 (PSD2) mean that banks must innovate and adopt emerging technologies sooner than later. Equally, in the era of data protection, harnessing FinTech’s understanding, and building comprehensive solutions to protect against vulnerabilities, is essential.

Bank-FinTech partnerships and collaborations are a way forward – and a win-win for everyone involved. Banks gain technological know-how and valuable insights. FinTechs can raise their profile, expand their market reach and gain trust. And let’s not forget the small businesses. These collaborations can benefit SMEs by offering user-centric features that meet their specific needs, easy access to alternative sources of faster financing, and flexibility and freedom to manage business finances transparently – from anywhere.

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