‘Frenemies’ May Become A FinTech/Big Bank Trend

In FinTech, as in politics, circumstances can make for some strange bedfellows.

Consider the evolving relationship between big banks and FinTech firms. Not long ago – think back, oh, only several months – FinTech was slated to eat traditional lenders’ lunches. Now, increasingly, they’re nibbling from the same plate.

As noted by CNBC on Monday (Jan. 11), banks have been pouring billions of dollars into FinTech, “with more to come.”

That last line might have FinTech startups – both existing and ones that might be only glimmers in some tech savants’ eyes – salivating.

After all, as noted by The Statistics Portal, banks could spend as much as $19.9 billion next year (that’s 2017), in North America alone on new financial technologies. Key drivers, said CNBC, will include mobile technologies and security. In reference to the former, one key beneficiary will be JPMorgan, which has been working on expanding its mobile platform and at the end of the September quarter of 2015 had the largest share of mobile banking customers, at 22 million users, which CNBC noted as a milestone, with the banking juggernaut coming in as the first large bank to top 20 million mobile users.

Certainly JPMorgan has not been sitting still, having made the move to link with a dozen and a half partners within FinTech to get Chase Pay further afield. And new technology projects will be front burner for the bank in 2016, with big data and blockchain topping the list.

In other initiatives, as CNBC detailed, Citibank is also making FinTech moves, making banking more widespread across mobile and also creating a unit dedicated to FinTech.

Though well documented, the partnerships just mentioned may just be the tip of the iceberg. The fact remains that FinTech firms, small though they may be, exist with one product, or a few, that help serve niches as yet untapped or wholly ignored by traditional lenders. And, as has been seen in other industries – such as pharmaceuticals, say, or semiconductors – necessity leads big companies quite quickly to “build or buy” decision.

And very often the decision is to buy. With billions of dollars at the ready, it’s possible that banks may start snapping up bite-sized disruptors simply because it would take too long to get up to speed with technology and/or manpower where the heavy lifting has already been done.

For FinTech startups, getting bought by a “frenemy” may be an attractive exit strategy, with the stock market, and initial public offerings proving ever less so.  Founders may indeed ponder this course, as no one (including the private equity and venture capital firms that are a startup’s early backers) wants to see a busted IPO.

Because technology would be complementary – and the bank would have a readily installed base of users (and financial firepower virtually unmatched) – founders and their teams would find new avenues of growth.

In the end, it may be the consumer who benefits from this cultural shift, where collaboration trumps pure competition, with greater flexibility to transact and bank anytime, anywhere, with speed, across institutions where they have long had relationships.