Fintech-Banks Partnerships: Fair-Weather Friends?


You have probably heard the term co-petition applied to the bank- relationships in which they do not only compete, but also cooperate on providing financial services and a better user experience. But how is this actually being implemented? Are we headed towards a collaborative environment in the near future? And perhaps more importantly, is this a win-win relationship, as it is usually described as? Some of these questions will only be answered as more real examples take off. So, for now, let’s start examining some of the arrangements already in place.

Sharing the value chain?

What looks clear is that are trying to fight back in every area in which they are facing disruption by new actors. Unlike some challenger banks (e.g. Number26 or Starling Bank) looking to build “banks as a platform”, traditional banks are used to owning the whole value chain, so they’re not eager to lose revenue from any of their businesses. In the words of Manolo Sanchez, chief executive of BBVA Compass:

 “There’s the much-talked-about discussion of utilities, where you have unbundling of the financial services value chain and banks are just providers of the rails. That would be falling into the low-value execution of this opportunity. We’re not so fond of the unbundling part of the fintech opportunity.”

I guess it is true that banks are scared of Fintech firms that can escalate and challenge their revenue sources (let alone the potential competition posed by the huge tech giants). But this won’t keep them from cooperating with them in different business areas if they can extract some positive outcomes from such a relationship.                  

So why would banks and Fintechs be interested in such cooperation?

On the banks’ side, many of them are trapped in their own legacy structure. Although, as Chris Skinner describes it, “in reality, the problem isn’t just the [banks’] legacy system. It’s the legacy people and legacy customer.” But even more relevant is the fact that they “were built around products, rather than customers”, as Tom Groenfeldt puts it. 

Under such a scenario, some of the characteristics of Fintech become very attractive since they are not easily replicable, for instance: the innovation culture, the ability to connect to millennials and the faster development cycle. That’s why Jamie Dimon, chief executive officer of JPMorgan Chase & Co., described the cooperation between banks and Fintech as “the kind of stuff we don’t want to do or can’t do, but there’s somebody else who can do it and do it probably well. So this is going to be collaborative”.

On the Fintech side, these firms may find opportunities in leveraging banks’ customer base, deep pockets, trust and reputation.

From acquisitions to partnerships

Like many firms from different industries, banks also face the build, borrow, or buy growth dilemma. We’ve seen several banks acquiring Fintechs (e.g. Simple, Holvi, Fidor, etc.); taking stakes or injecting capital (e.g. Atom Bank, iZettle, Ripple, etc.); creating labs for developing their own products in-house; or staging competitions and hackathons that could foster similar kinds of interactions. However, although there has been some buzz around direct collaborations between Fintechs and banks, we actually find few examples of this sort of partnerships among these players.

Focusing on the latter, we may find heterogeneous terms and conditions in place under the “” label, which implies that neither the goal nor the outcome of the collaboration are identical. We could classify them as follows:

  1. Cross-referral agreements: Both the Fintech firm and the bank refer their customers directly to each other’s platforms depending on the client’s profile.
  2. White label agreements: Banks use the Fintech firm’s and offer its product through their own platform (without disclosing the Fintech company’s name in the whole process).
  3. Full integration agreements: Banks offer a Fintech platform and product, fully integrating them into their own platform. 

Moreover, beyond the differences and specificities of each type, there is a clear trend towards a prominent role played by APIs in such agreements. But let’s examine some real examples to grasp better how this is being implemented.

 J.P. Morgan – OnDeck

J.P. Morgan is the largest US bank (Q3 Revenue ‘15 $23.5 billion) and OnDeck is a US Fintech (Q3 Revenue ‘15 $67 million) that provides loans to SMEs through an automated lending platform.

This “David and Goliath” deal could be categorised as a white label agreement, since J.P. Morgan is using OnDeck’s technology to give quick approvals and funding for small-dollar business loans, while the loans are J.P. Morgan-branded and appear on its balance sheet. So, OnDeck, which is invisible to J.P. Morgan customers, receives origination and servicing fees on each loan.

Through OnDeck’s technology, the bank gathers data about a business’s operations and SME customers are pre-screened by an algorithm that determines loan eligibility (OnDeck is prevented from pitching its loans to borrowers that J.P. Morgan rejects). In the end, some of them are invited to apply for loans of up to $250K.

This adds value for both partners. J.P. Morgan expands its share with business clients who want smaller loans while OnDeck could benefit from a huge revenue boost (and use data from the partnership to improve its lending models). 

Santander UK – Kabbage

Kabbage is a US Fintech that provides loans to SMEs through an automated lending platform and Santander UK is the British subsidiary of the Spanish Santander Group. One of the distinctive features of this partnership is that Kabbage was previously invested in by Santander through a $135-million Series E round in October via its fund InnoVentures.

Although they are still in the pilot phase (they started in April 2016 and we still don’t know how exactly it will crystallise), this seems yet another type of white label agreement. What we know is that Santander will offer working capital loans of up to $100,000 within a matter of hours to its SME customers in the UK through Kabbage’s platform. Right now, they are fine-tuning the platform’s lending algorithms before Santander’s pilot customers are tested.                        

Whereas Kabbage offers the technology, i.e. real-time risk modelling, and cross-reference data against multiple external sources (the approval times vary from 20 minutes to 13 hours and the interest ranges from 8%-20%), Santander provides its large SME customer base, its trusted reputation, its UK payments infrastructure and its understanding of the requirements of UK businesses. 

ING – Kabbage

But before partnering with Santander, Kabbage had already closed a similar deal with ING Bank. Again, Kabbage brings the technology, while ING brings funds and customers.                                                         

This is a white label agreement in which ING targets Spanish SMEs, with Kabbage’s participation also invisible to ING customers. The service was launched in November 2015 and is still in place. 

Under the product name Crédito NEGOCIOS 10’, the potential client needs to fill in a short form on ING’s website (answered within 10 minutes) and may apply for anywhere from €3,000 to €100,000 in financing.

Santander – Funding Circle

This older partnership between Santander and Funding Circle (the UKs biggest marketplace lending platform) would fall under the cross-referral agreement category.

Since 2014, Santander has been referring small business customers looking for a loan to Funding Circle, for those cases in which the Fintech firm is better placed to help. These referrals have taken place on Santander’s website and in letters to customers.

On Funding Circle‘s side, it has signposted borrowers to Santander “where they require day-to-day relationship banking support or other services that the bank can offer, such as international banking expertise, cash management and support for growth”. 

BBVA Compass – Dwolla

BBVA Compass, one of the US leaders in digital banking, has arranged partnerships with different Fintechs (such as FutureAdvisor and eCredable), the most prominent of which is the agreement with Dwolla.

Dwolla is a US real-time payments processor that bypasses traditional networks through its FiSync protocol. It aims at correcting the fact that the US lacks infrastructure and the rails to provide real-time payments.

BBVA Compass is the first major bank to have joined Dwolla’s network, directly suggesting its clients sign up with Dwolla so they can make real-time money transfers to other people or businesses through their BBVA checking accounts. 

In conclusion, we can expect many different kinds of partnerships between banks and financial technology firms to emerge in the following months. Given the different ways in which these may crystallise, establishing a win-win relationship will greatly depend on the details of each of them.

To go back to Kantox, we are already exploring “Full integration agreements” with different global banks. In a nutshell, we have developed very innovative products like Dynamic Hedging that banks are unable to develop or copy fast. They know that these products bring huge value to clients and that thanks to them we now have a very unique positioning in the market.

[linkedinbadge URL=”” connections=”off” mode=”icon” liname=”Philippe Gelis”] is CEO at KANTOX, disrupting the financial industry and this article was originally published on linkedin.