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Getting hitched

Not too long ago, fintech companies were a threat. Now banks are joining forces with start-ups to jump-start innovation, especially in payments.

Our recently updated research finds that, of the top 100 banks by assets and other digitally advanced banks, four out of five have now partnered with at least one fintech company. That is up from 55 percent just two years ago. Moreover, most banks are not stopping at a single partnership. On average, these banks have formed four such tie-ups (and the real number is probably higher, because our database includes only publicly announced partnerships). The deals range from simple buyer–supplier transactions to complex exclusive partnerships.

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A second popular digital move is using business-accelerator programs, in which banks provide early-stage businesses with time, space, expertise, and funding and gain immediate insights from an externally developed idea. And even in these programs, banks ultimately aspire to collaborate with fintech companies. These two trends display the current mind-set of banks: fintech companies are potent sources of innovation and good ways for banks to disrupt themselves.

In payments, banks are using partnerships to catch some powerful trends. For example, Banco Bilbao Vizcaya Argentaria (BBVA) has partnered with Dwolla in real-time payments, while Banco Santander (Santander) and Royal Bank of Canada are working with Ripple to develop cross-border blockchain-based transactions. Within operations, HSBC is partnering with Ayasdi to combat money laundering, while Erste Group Bank has introduced video-based identification with the aid of IDnow.

Banks are trying several models in lending, including referral programs (both Royal Bank of Scotland and Santander with Funding Circle), full back-to-front platform integration (ING and Kabbage), module integration (BBVA using OnDeck scores to assess small businesses looking for loans), and so on.

In investments and account-management services, ABN AMRO Bank has collaborated with Tink to launch a personal financial-management app. Barclays has partnered with Flux Systems to give customers itemized receipts on their smartphones, allowing them to see in detail how they spend their money. And Betterment Holdings has partnered with BlackRock and Goldman Sachs to expand portfolio options for increased personalization.

Risk and customer service, while less active, are picking up the pace. For example, Barac is working with Barclays to provide real-time analytics that can predict fraud and computer outages; BNP Paribas has integrated the SPIXII chatbot for customer service, and TD Bank has integrated the Kasisto conversational artificial-intelligence platform into its mobile app.

Where do we go from here?

Clearly, banks are moving to collaborate with fintech companies rather than develop their own in-house solutions, taking advantage of proven technologies and business models (and sometimes customer bases) while also often saving costs. It can be difficult to judge the success of banks’ partnerships with fintech companies from the outside, but it seems that winners are solving the core problems of partnership, including integration, alignment of incentives, and deal structure.

We expect payments to continue to dominate partnerships, due mainly to aggressive low-cost strategies by fintech companies but also to the immense opportunities that new technologies, such as blockchain, might offer. We also expect banks to digitize further in high-margin areas (such as lending, financing, and investing) and to partner with artificial-intelligence companies to improve customer service. As the tide of partnerships rolls on, banks should consider carefully their internal capabilities and strategies while keeping a keen eye on their competitors’ partnering activities.

Questions that banks should ask themselves

  • Do we have a full overview of our current partnerships?
  • Do we prioritize our current partnerships and actively add new ones?
  • Are our partnerships clearly linked to our digital, analytics, and agile transformations to create value at the core?

If the answers are not “yes,” a structured review of the bank’s financial-innovation activities can help get the best out of the opportunity.

Detailed views on the economics of banking are available by request from McKinsey Panorama Global Banking Pools. Should you want more details or have any questions, Panorama’s Helpdesk (panorama@McKinsey.com) is happy to provide methodological and analytical assistance.