Banks Leverage FinTech Partnerships to Ride Digital Transformation Wave

The digital transformation of banking continues to reshape how financial institutions (FIs) are meeting the evolving expectations of consumers. And central to this evolution are partnerships, which play a pivotal role in enhancing customer experiences and streamlining financial processes.

A recent collaboration between Bankjoy, a provider of digital banking solutions for banks and credit unions across the U.S., and Pinwheel, a FinTech company specializing in digital deposit switching (DDS), exemplifies this trend.

The partnership represents a significant step towards revolutionizing the process of setting up direct deposits, a process traditionally known for its paperwork-heavy nature and time-consuming procedures. Pinwheel’s digital deposit switching solution, Pinwheel Prime, now offers a seamless platform for users to manage their direct deposits efficiently, enabling them to switch, track, and manage their income streams effortlessly.

At the heart of this collaboration lies the recognition of the growing demand for frictionless banking experiences. As consumers increasingly embrace digital channels for their financial transactions, FIs are under pressure to innovate and offer solutions that meet the expectations of today’s tech-savvy customers.

“Banks are starting to realize the speed at which technology has changed the world,” James Butland, vice president of payments and U.K. managing director at Mangopay, recently told PYMNTS for the series “What’s Next in Payments: What is a Bank? The Changing Landscape of Banking and Financial Services.”

“The challenge that a traditional bank has, is that they sit on 150, 200 years of legacy infrastructure and probably 60 years of legacy technology. So, banks have found it difficult to innovate quickly,” Butland explained.

Consequently, this challenge has spurred a broader trend within the digital banking landscape — the convergence of technology and financial services to deliver enhanced value propositions. With the rise of FinTech startups offering specialized solutions, FIs are increasingly turning to partnerships to augment their existing capabilities and stay competitive in a rapidly changing market.

Indeed, Tom Priore, CEO of Priority Technology Holdings, highlighted the evolving dynamic between banks and FinTechs, noting a trend of “co-opetition” and collaboration. This trend sees banks partnering with FinTech startups to leverage their specialized solutions, thereby enhancing their existing offerings, which include lending, checking and deposit accounts, and cards.

Moreover, bank-FinTech partnerships highlight the importance of interoperability and open banking principles in driving innovation within the financial services industry. By leveraging APIs and data-sharing agreements, FIs can seamlessly integrate third-party solutions into their existing infrastructure, expanding the range of services available to customers.

Dave Scola, CEO, U.S. at Form3, discussed this trend in a recent interview with PYMNTS, emphasizing how the transformation of banking and financial services is demanding greater collaboration between traditional banks and digital upstarts.

“The need to have banks work well with each other — and with FinTechs,” Scola said, “is driving a need for greater […] technical integration. So that’s why you’re seeing the rise of APIs.”

Scola further argued that with consumer-permissioned data, open banking holds significant potential in helping banks create new revenue streams as they partner with FinTechs to streamline innovative efforts and bring them to market faster.

“Banks are recognizing the need to be more technically flexible,” he pointed out, “and bring in services from multiple sources and move assets and accounts — and data — between multiple sources.”

Priore echoes this sentiment, emphasizing the value of FinTech partnerships in unlocking open banking’s potential. This is particularly crucial given the challenges posed by regulatory and capital requirements, which have hindered banks’ ability to invest in open banking initiatives.

Partnering with FinTechs, as Priore suggests, enables banks to expand their customer base without significant customer acquisition costs, fostering growth and innovation in a rapidly evolving digital landscape.

Beyond partnerships, several trends are shaping the digital banking landscape, including the rise of mobile banking apps, the adoption of artificial intelligence (AI) and machine learning (ML) for personalized financial insights, and the increasing focus on fraud and data privacy and security.

As consumer expectations for convenience, flexibility, and security continue to rise, FIs are compelled to invest in technologies that enable them to meet these demands and remain relevant in an increasingly digital world.

Read more: Virtual Banks Forge Ahead in Defining Banking’s Digital Future