Bright Year to Come? Fintech Bank Partnerships in 2024.
The post-pandemic years have not been kind to the financial services industry. With elevated interest rates banks are running on thin margins and extra scrutiny has been given to fintechs across the board as compliance issues have raised questions from investors. But for those organizations offering banking-as-a-service programs, or focused on regulatory compliance - there is a prediction of “...bright years to come”, or at least says Cross River Bank CEO Gilles Gade.
In his speech at Money 20/20, Gade laid out what he considers a call for banks and fintechs to work together to create innovations in regulatory compliance. Considering Cross River Bank has been in hot water this past year over non-compliance, it’s an interesting prediction. So what are some of the major trends and considerations for fintech-bank partnerships going into 2024? Let’s take some time to break down the embattled CEO’s prediction.
The rise and fall and revival of fintech bank partnerships
Fintech bank partnerships have gained momentum since the 2010s. Traditional banks and financial institutions have recognized the potential of fintech to enhance their services, reduce operational costs, and increase customer engagement. Established players like JPMorgan Chase's partnership with Plaid and Goldman Sachs' collaboration with Apple on the Apple Card are easy examples of big finance and big tech collaborating to make things easy for the consumer.
While such partnerships have brought about significant advancements, challenges like regulatory compliance, data security, and technology integration persist. All one needs is a quick Google search to read stories of fintech bank partnership failures and fines. The SBF trial and lesser-known stories such as Lincoln Savings Bank and Coastal Community Bank give evidence to the argument that limited oversight and rapid growth often cause unwieldy results. Yet at the same time, learning from early case studies like these can be catalysts for ongoing innovation and the emergence of new regulatory solutions.
Trends Shaping Fintech Bank Partnerships in 2024
Cultural Misalignment:
Bridging the gap between the agile, innovation-focused culture of fintech firms and the more traditional, risk-averse culture of banks can be challenging. Successful partnerships require a shared vision and effective communication.
Regulatory Changes and Their Impact
Regulations play a pivotal role in shaping future fintech bank partnerships. Until now, fintech bank partnerships have forged ahead, asking regulators for forgiveness rather than permission. But now regulators are catching up and the fines are staggering. It’s key that future fintech bank partnerships take note of those existing regulatory case studies and do their due diligence when choosing or expanding a partnership. One key event to note is the new Safeguards Rule passed by the FTC in October 2023, requiring all non-bank entities to report breaches in data security.
Open Banking initiatives and PSD2 regulations have paved the way for increased data sharing and interoperability among banks and fintech companies. In 2024, we expect further refinement of these regulations and an even more standardized data-sharing approach. The ongoing dedication to privacy and data protection regulations, notably GDPR, reinforces the steadfast focus on guaranteeing the secure management of personal financial data, ensuring a future where confidentiality and trust remain paramount.
Technological Advancements Driving Innovation
The continued integration of artificial intelligence and machine learning will enable banks to offer more personalized financial services. Blockchain and cryptocurrencies will further disrupt traditional payment systems and create new avenues for secure and efficient cross-border transactions. Incorporating emerging technologies like generative AI will also have an impact on fintech bank partnerships in 2024 as banks and startups alike try to take advantage of this revolutionary asset. Already sub economies have sprouted up around the use of gen AI for chatbots, trade algorithms, and investment strategies. It’s hard to see the end of the innovations made available by generative AI - and fintech is eager to capitalize on this new trend.
Open Banking Initiatives
Open banking continues to gain traction, fostering collaboration and data-sharing between banks and fintechs. This has led to the development of innovative financial products and services, providing customers with more choices and personalized solutions.
Fintech bank partnerships in 2024 will need to emphasize customer-centricity. Personalization and improved customer experiences will be at the forefront of product development (hyperlinking back to the previous point about generative AI). Financial wellness and inclusion will take center stage, addressing issues like financial literacy and accessibility to financial services for underserved populations.
But what about the economy?
As we enter 2024 organizations are well aware of the slowing economy, impacted by high interest rates and assertive regulations. However, not all are negative. Banks and fintechs are perfectly positioned to partner to innovate and create new value within a capital-starved system.
Conclusion
As we enter 2024, fintech bank partnerships are poised to be a driving force in the financial industry. These collaborations will continue to reshape the way we access and manage our financial resources, emphasizing customer-centricity and innovation. Because of the challenges issued to the industry by tighter regulations the future of fintech bank partnerships promises a more inclusive, secure, and efficient financial ecosystem, setting the stage for further growth and advancement in the years to come.