In decades past, banks were brick-and-mortar structures that all offered similar products, with the same account-opening procedures and after-sale servicing. The competition was similar between the banks and the real battles typically involved interest rates. However, technology changed the landscape, and non-banking competition has overturned traditional banking approaches. For most financial institutions, competition will no longer be enough. It’s now a race for the best 'coopetive' partnerships, Here’s why.
Collaborative competition or coopetition is the relationship between businesses or industries that previously created products or services to compete with others but now work together to provide solutions for mutual clients. Examples of coopetition include credit card companies and online payment portals such as PayPal. While these would traditionally be considered competitors in the true sense of the word, client servicing helped them forge a collaborative, coopetive goal.
One of the benefits of sharing a client base is that the entire infrastructure doesn’t rest on one provider’s shoulders. For instance, FinTechs who use existing banking infrastructure already have the following in place before they even start:
Without the banking framework, FinTechs would have to carry the cost of putting all of this in place on their own.
For banks, coopetition offers the opportunity to add another product or service to their client offerings without going through the initial new-product launch problems. Coopetition with a FinTech means that startup and development costs are carried by them, not the bank.
Product development can take years if not decades, especially if it’s outside the bank’s comfort zone. Fintechs, however, throw all their resources at the development of that product which allows them to get it to market faster, with or without the help of investors. For banks, the addition of a new value-add that doesn’t require their investment, research, or development means it reaches the market quicker and banks enjoy the fruits of rapid scaling.
Traditional banks have the advantage of a loyal client base and the means to create innovative products. However, where costs are concerned, it's hard to compete with banks that don't have high brick-and-mortar expenses. Internet banks, for instance, have lower overheads and are able to pass this on to their customers. Major selling points include zero account fees and the ability to complete all your banking transactions online without ever having to set a foot in a physical branch. Traditional banks will now have to decide whether to forgo those lucrative transactional fees and let go of their biggest safety net or embrace coopetition to fill the gaps.
By expanding products and services beyond the traditional range and providing value adds through FinTech collaborations, banks will be able to adapt to their new landscape.