The banking industry is at a critical crossroads.
As banks face compounding competition, skyrocketing customer expectations and the pressure to keep up with new technologies, they must determine the best path forward. While some have turned to banking as a service and others to open banking as ways to innovate, both options can cause friction. Banking as a service requires banks to put their charters on the line for their financial technology partners, and open banking pits banks and fintechs against each other in competition for customers’ loans and deposits.
Instead, many are starting to consider a new route, one that benefits all parties involved: banks, fintechs and customers. Collaborative banking allows institutions to connect with customer-facing fintechs in a secure, compliant marketplace. This model allows banks and fintechs to finally join forces, sharing revenue and business opportunities — all for the good of the customer.
Collaborative banking removes the regulatory risk traditionally associated with bank-fintech partnerships. The digital rails connecting banks to the marketplace anonymize and tokenize customer data, so that no personally identifiable information data is shared with fintechs. Banks can offer their customers access to technology they want, without having to go through vendor evaluations, one-to-one fintech integrations and rigorous vendor due diligence.
Consider the time and money it can take for banks to turn on just one fintech today: an average of 6 months to a year and up to $1 million. A collaborative banking framework allows quick, more affordable introduction of unlimited fintech partnerships without the liability and risk, enabling banks to strategically balance their portfolios and grow.
Banks enabling safe, private fintech partnerships will be especially important as consumers increasingly demand more control over their data. There is a need for greater control in financial services, granting consumers stronger authority over which firms can access their data and under which conditions. Plus, delivering access to a wider range of features and functionality empowers consumers and businesses to strengthen their financial wellness. Collaborative banking proactively enhances consumer choice, which ultimately strengthens relationships and creates loyalty.
The model also allows for banks to offer one-to-one personalization at scale. Currently, most institutions do not have an effective way to accurately personalize experiences for each customer they serve. People are simply too nuanced for one app to fit all. With collaborative banking, customers can go into the marketplace and download the niche apps they want. Whether this means apps for the gig economy or for teenagers to safely build credit, each consumer or business can easily download and leverage the new technology that works for them. Banks have an opportunity to sit at the center of customer financial empowerment, providing the trust, support, local presence and technology that meets customers’ specific needs, but without opening up their customers to third-party data monetization.
While many banks continue attempting to figure out how to make inherently flawed models, such as banking as a service and open banking, work, there is another way to future-proof institutions while creating opportunities for both banks and fintechs. Collaborative banking requires a notable shift in thinking, but it offers a win-win-win scenario for banks, fintechs and customers alike. It paves the way for industry growth, stronger partnerships and more control and choice for consumers and businesses.
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