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The relationship between fintech startups and legacy banks is being rewritten

By Deloitte Global

Burgeoning fintech firms aim to fix issues within the financial industry. Things like clunky customer service, inefficient use of big data, and a lack of a sustainable model for reaching underserved communities are now fair game for disruption. But the “move fast and break things” paradigm doesn’t always work in a field that’s renowned for being bound in red tape. This is where legacy banks, with their years of experience and knowledge, can lend a hand.

Though they seem to be in market competition, fintechs and financial institutions can actually work together—and mutually benefit. Fintech startups bring agility and technological know-how to the table; legacy financial institutions provide resources and regulatory acuity that’s been honed over decades. Long-standing financial institutions are banking on their wealth of experience for security and relevance in a digital era—one in which more than 30% of millennials say they won’t even need a bank in the next five years.

Explore ways in which a fictional financial firm (BIG Bank) and a hypothetical fintech company (Acme Fintech) might work together. These partnerships are examples of what may be in store for the future of finance, and how such an approach may solve common customer pain points.

Pain point:

Unbanked segments of society living in rural areas have limited access to traditional financial institutions.

Inspired by real-world example:

In Jordan, Syrian refugees are using cashless transactions to purchase food for their families locally. These transfers are enabled by DLT systems built by a startup, Building Blocks, and backed by the World Food Programme.

Pain point:

Having a bank account is not the same as having financial knowledge—two-thirds of Americans can’t pass a basic financial literacy test. At the same time, financial institutions are experiencing less demand for brick-and-mortar services as customers turn to online banking—experts believe as many as 20% of bank branches may close imminently.

Inspired by real-world example:

MidFirst Bank, in the US Southwest, offers free financial workshops and group classes in its branches. These programs provide financial education on a range of topics from banking basics to identify theft. The classes are accompanied by digital resources and tools including online tutorials, videos, and games.

Pain point:

Small business owners in Central America who offer online services—language lessons or artisanal goods, for example—have difficulty accepting international currencies due to high exchange rates. Because of these inefficiencies, small- and medium-sized enterprises lose part of their hard-earned profits with every transaction, and even lose customers due to the high barrier to entry.

Inspired by the real-world example:

TransferWise is a fintech company that enables cross-border and cross-currency money transfers. In 2016, the company teamed up with Raphaels Bank for access to the UK’s Faster Payments System. It also works with traditional bank accounts and debit cards, which are foundational to TransferWise’s Borderless service (cross-border bank accounts).

Pain point:

Traditional bank fees for things like opening a checking account, withdrawing from another bank’s ATM, overdrafting, or maintaining a minimum balance are tedious and costly.

Inspired by the real-world example:

Simple, a fee-free service that aims to simplify banking processes, partners with BBVA Compass and Visa to provide users with reliable, secure accounts and debit cards. The company oversees all other elements of its services in-house, including its apps and customer support team, and uses a customer-centric approach.

Pain point:

Banks’ customer service call centers are notoriously inefficient.

Inspired by the real-world example:

In Germany, Deutsche Kreditbank AG worked with Berlin-based FinReach to develop “Herbie,” a chatbot that guides customers through loan application processes. In Canada, BMO is experimenting with chatbots for basic customer service inquiries via Facebook Messenger and Twitter, created in collaboration with Finn.ai and Massively.

Pain point:

Going to a bank in person is a cumbersome and time-consuming experience.

Inspired by the real-world example:

Westpac New Zealand is starting to deploy beacons in their branches to identify previously enrolled customers. This lets bank staff provide more personalized customer service.

In 2018, everything from delivery sushi to premium television is available on-demand and practically instantaneously. Today, customers want this same level of personalization and speed when it comes to banking. Nobody wants to wait 30 minutes to speak with a customer service representative; waiting weeks to hear about a loan application is a process that seems stuck in the Stone Age; setting foot inside a physical bank has become a dreaded chore.

Given this, old-school financial institutions’ close collaboration with fintech startups will be paramount in an era defined by instant gratification. The proof is in the numbers: In a 2016 survey, 87% of UK financial institutions surveyed said they had cut some costs by collaborating with a fintech company. For fintech companies, partnering with an established financial institution provides a way to access new markets, gain industry knowledge and clout, and tout a competitive edge in an increasingly saturated market.

Such partnerships, then, are fruitful for both sides. More than simply keeping fintechs afloat or helping big banks cut down on bureaucracy, such partnerships may usher in an era of nimble, customer-centric financial services. That’s a gain for everyone—and puts the customer at the heart of banking.

This article was produced on behalf of Deloitte Global by Quartz Creative and not by the Quartz editorial staff.