Alexander Paetzold, COO Trade Technologies & MD Trade Technologies Germany GmbH
Collaboration between FinTechs & Banks
The last decade has shown quite a mixed picture in the collaboration between FinTechs & Banks. At the very beginning of this period Thought Leaders in the Industry believed FinTechs would replace Banks – maybe not in every aspect, but in those areas of business where FinTechs can provide a better technological platform/infrastructure than Banks. Over time, it became clear that a collaboration between FinTech’s & Banks will provide the highest added value to the relevant markets. It became evident that particularly those cooperations succeeded, where both partners were able to bring their own and distinct strengths to the table:
- Generally, Banks are much better at managing client relationships (multi-product, multi-country) and benefit from (sometimes) decades of client cooperation.
- The strength of a FinTech (generally speaking) is to develop and/or quickly adapt to new technology that brings added value to the bank and its clients.
The distinct advantages of FinTech’s, i.e. their agility and ability to drastically scale their platform-based business, led to some challenges for their partners in the banking industry to introduce a cooperation model that works for both parties. On the one hand, it should allow the FinTech to keep its strengths. On the other hand, it should also allow the bank to take a distinct view of the IT Risks they would face from system integration, along with the Operation Risks that might come from various other kinds of cooperation.
Recently, the ICC published a paper to establish a standard for the above topics, which is explicitly mentioning the following aspects:
- Information Security Standards
- Risk Management
Unfortunately, the paper does not really make a differentiation between different scenarios, i.e.
- The FinTech is, in fact, a partner of the bank that is processing data on behalf of the bank vs. the FinTech is a partner of the mutual client and is therefore processing client data that is meant to be shared with the bank (and other external parties).
- The FinTech is processing “private” information on behalf of the mutual client, that (in general) is not meant to be shared with other parties. Vs. the FinTech is processing “public” (in one way or the other) information that is meant to be shared with the bank (and other external parties).
Conducting a Risk Assessment on the FinTech based on the assumption it has to be classified as a “Bank” or “Financial Institution” will lead to misleading results. Step by step, it will also lead to the FinTech losing much of its original strengths, such as agility and speed.