Cash management and payments have gone on a journey over the past few years from a stalwart of the banking business to a complex ecosystem with numerous new entrants, innovative value propositions, and highly dynamic relationships. Where there were once well- defined roles, today these are shifting opportunities and positions in the market.
Gone are the days when banks viewed emerging fintechs with suspicion - wondering how these upstarts were going to steal their slice of the pie. Increasingly, banks are looking at fintechs who they would once have considered their competitors and asking themselves – how can we collaborate with them instead?
Collaborate, don’t compete
This is where the phrase ‘coopetition’ enters the debate. Combining the words ‘competition’ and ‘cooperation’, it refers to the practice of firms who could potentially compete with each other, choosing instead to collaborate to mutual benefit. This can be with the objective of maximising market share, enhancing market size, or neutralising a dangerous competitor or other threat. For banks offering corporate cash management services, coopetition initiatives have the potential to enable them to fulfil all these objectives, provided they can execute effectively.
However, this requires a fundamental mindset adjustment. For a long time, the emphasis has been on banks developing and providing all of the services their clients could need. Coopetition is not about this – it’s about owning the customer journey, and making it as exciting, satisfying, and frictionless as you can. Within this process lies the real value of coopetition – partnering with fintechs who may be competing with you to serve the same audience, in order to delight that audience with an innovative proposition created from your combined strengths.
Raised expectations: Corporate customers expect more
At the absolute heart of this drive to collaborate alongside competing is the customer and their needs. Today, corporate customers are demanding a banking experience which is more aligned with their own personal banking activities/preferences. This means that many of the traditional frictions that corporate banking customers experience – slow and clunky onboarding, inability to access their own systems due to siloed data, disparate systems and technology– will no longer be tolerated.
On the retail side, the ability of fintechs and challenger banks to lure customers away from incumbents has been identified as a major challenge. However in the corporate space, where these alternatives have not yet gained solid traction, there is an opportunity for banks to form collaborative relationships with fintechs in order to deliver this modern user journey for their customers, eliminating thorny pain points that have plagued the industry for years.
Play to your strengths
Collaborating with the competition also allows banks and fintechs to focus on their ‘core competencies’ - the parts of the customer journey that they do best. Instead of devoting time and resources to developing propositions in niche segments, banks may instead choose to partner with fintechs serving these markets, enabling them to give customers what they are looking for and retain control over their journey without having to build everything themselves. These collaborations can also enable banks to develop new capabilities. Many incumbents have talked at length about the difficulties of building innovative cultures in large, regulated financial institutions. First-hand exposure through collaboration to the ‘move fast and break things’ approach of smaller, more agile fintechs may provide banks with new insights into how they can adopt the appropriate elements of this attitude themselves.
Identifying the collaboration challenges
If the benefits of this kind of collaboration are in the differences between the two sides, then so are the challenges. The differences in attitude and approach enable both sides to learn from each other, but also raise potential clashes. Fintechs that have not worked with established financial institutions before may be taken aback by the due diligence, regulatory hurdles, and number of processes involved, whilst banks may find that the pace and frequency of pivots and changes by fintechs may be hard to reconcile with their internal risk management requirements.
So what do banks need to do in order to make a success of coopetition? The key is to determine where you do and don’t want to compete. As highly technical areas such as data assume more importance for you and your customers alike, working with firms who understand this space allows you to benefit from their expertise and extensive R&D investment in a tightly focused area.
The perfect partner: Building strong, collaborative relationships
For this approach to work, it relies on the careful selection of your collaborative fintech partner - one whose purpose, vision, and strategic objectives align with your own. With a trusted fintech partner by your side, many of the challenges outlined above simply melt away – and if they don’t, you can take a collaborative approach to addressing them. Banks going through the process of selecting partners should take the opportunity to work with them on proof of concepts (PoC’s), seeing not only what the fintech can deliver but how they actually work in the process.
Survival in the highly dynamic corporate cash management space requires a nuanced approach to the ecosystem, and rather than trying to spread themselves too thinly, banks should leverage the spirit of coopetition to take advantage of all of the opportunities that this new environment offers.
To understand how collaboration and connectivity can help you to serve your corporate clients more effectively, please contact us below for a discussion.