Banks vs. Fintechs: Collaborative Opportunities Amidst Different Services

In the fast-paced world of finance, the ongoing discussion about the rivalry between traditional banks and fintech startups continues to captivate industry observers, writes Louis Thompsett in Fintech Magazine. James Simcox, the Group Chief Product Officer & International Managing Director of Equals Money, provides a unique perspective on this debate, shedding light on the evolving dynamics in the financial services sector.

Simcox acknowledges that fintech companies often accuse banks of offering subpar services, especially when compared to the innovative solutions they themselves provide. However, he challenges the notion that traditional banks are inherently outdated. Instead, Simcox emphasizes that banks and fintechs are primarily focused on distinct services.

He points out that banks have made substantial investments in their infrastructure, with some offering comprehensive suites of APIs that grant businesses access to valuable services and partnerships, resulting in new revenue streams. Additionally, many banks provide convenient out-of-the-box solutions for businesses, featuring low-cost transactions within local payment networks.

However, Simcox highlights the primary drivers of profit for banks—commercial and retail banking. Commercial banking thrives on tight margins derived from high transaction volumes, causing banks to prioritize simplicity and efficiency in serving businesses. Consequently, businesses with lower transaction volumes or specific needs, such as favorable foreign currency rates, may find themselves underserved by major banks.

The demand for alternative providers in foreign exchange, such as fintechs, has surged. Fintechs can aggregate the flow from numerous smaller clients while delivering the same services that larger companies receive from traditional banks.

Conversely, retail banking generates revenue from higher margins, achieved by offering multiple products to individual customers, including mortgages, currency accounts, and credit cards. In this context, fintechs specializing in prepaid expense cards and shared virtual cards offer more tailored solutions that prioritize security and expense management for businesses.

Simcox underscores that banks are not falling behind; rather, they prioritize profits over actively assisting small businesses in catching up. This emphasis on profitability leads forward-thinking businesses to explore alternative payment providers, such as fintechs, that offer a comprehensive range of services that major banks cannot match.

Fintechs, like Equals Money, bridge the gap between banks and businesses by acting as intermediaries. They establish strong relationships with banks and possess the capacity to understand various business needs. This approach simplifies businesses’ interactions with fintechs, providing them with personalized services and accessible technology that connect to a vast network of banking relationships and services.

One area where fintechs excel is integration with banks. This process can be intricate and resource-intensive for businesses. Fintech companies streamline this complex integration, ensuring businesses do not need to adapt their rules and workflows to align with inconsistent file formats across the banking sector.

While banks and fintechs may appear to be in competition, they each play distinct roles in the financial ecosystem. Banks maintain strong infrastructure and offer essential services, while fintechs provide specialized, innovative solutions. The collaboration between these two entities can result in a more robust financial landscape, with businesses benefiting from a diverse range of services tailored to their specific needs. As Equals Money demonstrates, a combination of services and partnerships with Tier 1 banks can simplify payments for businesses of all sizes and industries.