Banks and fintech companies: The twin pillars of financial inclusion

Photo Credit: Wikimedia Commons

Fintech emerged as a direct challenge to the dominance of traditional banks. But banks and fintech companies are increasingly defining a unique relationship of mutual patronage.


Fintech companies have disrupted the way banks and financial institutions function. They have demonstrated that alternative business models with customer satisfaction at their core are critical to businesses’ survival in the financial sector.

Banks, the traditional, licensed financial institutions, have long held a monopoly on financial services. But as businesses turn online to reach a wider consumer base, and customers crave ways to make purchases and payments more cheaply and quickly, the nature of the relationship between banks and fintech companies is shaping ASEAN’s financial landscape.

Banks and fintech companies are developing strategic partnerships

Banks appear credible and trustworthy to their consumers. Post-2007 regulation lends them legitimacy and reliability. However, fintech’s technology, transparency, and contextual services have allowed it to access remote consumer markets not feasible for banks.

To avoid being left behind in the race to capture new segments, banks are partnering with major fintech players with innovative business models in the form of strategic partnerships.

The 2018 Fintech Disruptors Report reveals how banks dealt with the threat of fintech by embracing partnerships and using the technology to reinforce their own brands. This reflects the events currently unfolding in Singapore and the ASEAN region.

Jeremy Tan, the founder and CEO of Singapore’s Liquid Pay, told ASEAN Today, “traditional banks and fintechs are finally following a collaborative approach rather than viewing [each other] as competitors”. He added, “most, if not all of our partners are either banks or financial institutions.”

Regulation is driving bank-fintech partnerships

In Singapore, the MAS (Monetary Authority of Singapore) is in the driver’s seat. It is nurturing a robust ecosystem for financial innovation, with back-to-back rollouts of new guidelines like the new Payment Services Bill.

The regulatory framework within the Payment Services Bill includes guidelines for a safer payment system, and awards banks a supporting role in the fintech landscape.

Features like the unified Singapore Quick Response (SGQR) code and the Fast and Secure Transfer (FAST) service of funds transfer system, is further opening up the payments space. The real-time 24/7 FAST payment system will grant non-banking fintech players access to banks for two-way transactions between banks and e-wallets.

As the world’s first unified QR code system, SGQR is expected to encourage the use of mobile e-payments among 27 e-payment operators in Singapore. The three largest banks in Singapore— Overseas-Chinese Banking Corporation (OCBC), DBS, and the United Overseas Bank (UOB)— all stand to benefit from the new fee revenues and lower costs of handling payments.

The E-payments User Protection Guidelines also aim to encourage the wider adoption of e-payments “by setting standards on the responsibilities of financial institutions and e-payment users”. The stipulation that banks provide timely transaction notifications to users at the time of third-party money transfers to e-wallets is a clear indication that legislation is fostering cooperation between banks and fintech.

What do banks and fintech companies expect from each other

The ultimate goal of banks is to leverage the extensive reach of fintech platforms and the wealth of data at their disposal. Partnerships to facilitate seamless payments and back-end access to financial data are just some ways banks are striving to gain from fintech’s momentum.

Fintech players, on the other hand, are leveraging the infrastructure of the banking system for new financial models in the lending and financing sectors.

Banks get access to data…

Jeremy Tan told ASEAN Today, “banks are… realising that it is difficult to control all parts of the value chain using the traditional business models”, he added, “new business models need to be explored to… better address the growing expectations of the target audience demanding greater access, flexibility, better value and improved transparency.”

Fintech firms’ most powerful tool is their easy-to-download mobile Apps, and their seamless ability to partner with merchants, wallets and banks. Applications are able to harvest immense sums of customer data and user behaviour, including many indicators of their creditworthiness.

This is what banks want access to. The predictive models and sophisticated self-learning algorithms within fintech’s big data ecosystem enable a more accurate, faster assessment of financial risk that is not currently within banks’ capabilities.

Data that helps assess the creditworthiness of the consumer is a treasure trove for banks. Big data analytics powers actuarial decisions to strengthen the P2P lending space. The use of predictive analytics by fintech firms allows brands to set accurate borrowing terms for better returns; giving an edge over banks.

… while fintech firms get access to funding

The Singapore bank-fintech partnership is powered by a unique and agile collaborative model. Singapore banks are promoting the fintech revolution through incubator programs to use foundation to build stronger bank-fintech relations.

There are various examples of banks teaming up with fintech players to capture ASEAN’s unbanked and uninsured markets. UOB has partnered with several fintech companies like Grab and participated in the FinLab accelerator programme.

DBS has been Go-Jek’s primary partner for its Singapore operations. OCBC is also promoting fintech innovation via its Open Vault OCBC (TOV) initiative. For Citi Bank, Singapore is the test-bed for its digital payments, like CitiPay with Points and Voice Biometrics.

As the race for a bigger pie of the payments sector gets hotter, Singapore banks are rolling out the carpet for fintech innovation. Labs, incubator programmes and dynamic collaborative models, are part of the emerging bank-fintech partnership trends. Innovation and changing customer expectations are driving this alliance, with the MAS acting as the lynchpin.