Banks have historically developed their own solutions for the marketplace, using sophisticated information technology (IT) and development resources. “If they wanted something for the marketplace, they would create it” and would design, develop and support those solutions for their unique needs, DadeSystems President and CEO Bill Zayas told PYMNTS in an interview. While that model worked well, Zayas said third-party providers have started to create solid software apps that met different needs over the years.
Amid that trend, Zayas said bigger banks would license a FinTech’s code and then take it apart to fit their environment. The advantage, in that case, is that someone else did all the development work – but the banks still had to configure, install and support these customized applications. “They couldn’t turn to the vendor because they had modified it so extensively,” Zayas said. And from an innovation perspective, this setup kept the banks a step behind.
Today, however, Zayas said there is much more collaboration between banks and FinTechs, which are not encumbered by legacy environments. These firms can tap into new tech stacks and develop new solutions that fit the marketplace and take advantage of the latest technology. Bigger banks were not running solutions in the public cloud, for instance, because they had a closed-loop environment – but FinTech may be able to take a different approach.
DadeSystems, for instance, has been able to help with receivables automation or integrated receivables (IR), while leveraging open-source technology, a more advanced tech stack and the public cloud. FinTech collaborations can also serve as a defensive strategy for the bank. If the FinTech serves a bank’s customer directly, the bank could be disassociated from the customer. The FinTech, in turn, could provide the solution and cut the bank out, which makes the corporate less sticky to the bank. By collaborating with the FinTech, however, banks bring the solution to the market faster and offer it themselves.
And Zayas pointed out that FinTechs and banks are working on a partnership model that may differ from how they historically collaborated. In this kind of model, FinTechs can provide white-label solutions to the banks. Their technology then works behind the scenes and serves as the engine powering the solution in a less costly environment, further suggesting that banks can benefit from working with FinTechs.