Acquisition or partnership? Banks join forces with FinTech providers
Facing increasing competition from market challengers and FinTech providers, incumbent banks have three choices if they are to stay on top of innovation: build in-house solutions to match those of new market entrants, acquire competitors, or partner up with third parties.
Building the skills in-house can be time-consuming and very expensive. For this reason, acquiring other businesses has often been the more appealing option. This has likely worked in favour of most FinTech providers too, which might not be commercially viable as standalone businesses.
However, while waiting for PSD2 regulation to come into effect, another option for incumbents has been to partner with the challengers. This has the potential to let incumbents make the most of innovative tech solutions without dealing with the cost and logistics of acquisition or building skills internally. For some, this strategic decision can prove very rewarding.
Here is a look both acquisition and partnership strategies applied by banks.
BBVA’s acquisition model: it started with Simple
Mapa has previously commented on BBVA’s digital banking strategy. The Spanish bank has been quick to market with interesting features and initiatives such as their Innovation Centre, BBVA Contigo and Remote Signature. It is complementing this early-mover mentality by acquiring disruptors and partnering up with FinTech providers who are targeting different markets, adding to BBVA’s capabilities and reach.
When the US challenger Simple launched its beta version in 2012, its mission was to simplify banking whilst maintaining great design, helpful tools and ‘genuine human goodness’. In the first six months of 2013, it doubled its customers from 20,000 to 40,000, with the value of transactions going from $200 million to $1 billion. In 2014, BBVA Group acquired Simple for $117 million.
Last year, BBVA bought a 29.5 percent stake in UK’s online bank Atom for £45 million. This was a bold move considering Atom had yet to launch to the public at the time. Atom launched savings accounts and small business loans through brokers in April this year, and it’s now looking to raise another £100 million to meet regulatory capital requirements and grow lending.
Finnish online-only business banking platform Holvi launched in 2011. The bank is targeting entrepreneurs and SMEs and is currently operating in Finland, Germany and Austria. It has plans to expand its services through Europe, a market of 40 million startups and other small businesses. BBVA went on to buy Holvi in March this year. Since then, Holvi has announced a partnership with Germany’s SumUp, who offer an affordable Point of Sale solution to small businesses.
Fidor Bank: owned by Groupe BPCE, partners with Telefonica
Germany’s challenger bank Fidor can, in many ways, be regarded as a digital innovator. It opened up its API to customers (in Germany), allowing users to customise their own banking experience, and has been experimenting with the concept of ‘Login with Fidor’, third party collaborations and more. In addition, it has created a white-label technology platform that Telefonica is using to provide its mobile-only banking service.
In July, Groupe BPCE bought Fidor with its 350,000 members and 120,000 customers in Germany and the UK. The acquisition was said to fit in with BPCE’s strategic plan ‘Another Way to Grow’. Fidor will continue to operate as an independent business.
Moven: focusing on partnerships
Moven is, arguably, one of the most exciting mobile banking disruptors in the US. In 2014, it partnered up with New Zealand’s Westpac to integrate its money management technology into Westpac’s banking app.
More recently, Moven has partnered with Canadian TD Banking Group to offer a TD-branded spending app. Using Moven’s money management tool at its core, the app has made it to the top 25 downloaded apps in Canada, and has attracted more than 550,000 TD customers since its launch in April this year.
By partnering with banks that don’t directly conflict with its own target market, Moven is able to have its cake and eat it, increasing its international reach without the cost and effort of launching in a new country directly.
Acquisition or partnership?
Although acquiring market challengers and FinTech providers can be less costly for banks than employing a strategy of in-house development, partnering up with younger players can offer an interesting alternative. For some FinTech providers, this has turned out to be a particularly profitable solution, as it’s enabling them to act as technology vendors – as in the case of Moven and Fidor.
Mapa’s Research Manager Jess Morley comments, ‘Partnerships allow incumbents to offer the technological solutions that their customers are demanding, at a lower cost and with a shorter-term commitment. However, there is a risk to the incumbents that this could create a barrier between them and their customers.’
‘There are discussions to be had about who owns the customer data, which is often the most valuable aspect of any financial transaction. One of the main reasons Apple, for example, has managed to gather so much support from UK banks is that it agreed not to hold onto to customer data.’
Mapa Research monitors BBVA, Simple, Fidor Bank and Moven as part of the Mobile Banking Dashboard. If you would like to know more about any of these banks or any of our products, please contact us now.