By Karim Jouini, CEO ofExpenditure.
Growing by external growth for a small structure can be considered a complex process and often reserved for large groups. A lack of understanding that can leave the start-up with no real development opportunities. For ambitious SMEs, external growth is a very effective means of development.
External growth refers to all operations carried out by a company with the aim of getting closer to other entities through an acquisition or merger, for example. In the field of fintechs and with the need to reach a critical dimension, a golden opportunity arises for these innovative start-ups. What is the role of fintechs in the financial sector and in particular banks? And how can fintechs take advantage of the inertia of financial institutions to ensure their growth?
Fintechs: the Eldorado of the financial sector!
With the digital transition experienced in recent years, several start-ups have emerged. Much more agile, innovative and technological, they gained space. Fintech refers to technology companies that challenge incumbent players in finance and banking by offering innovative, fully digitized financial services.
Although they emerged several years earlier, fintechs have grown exponentially in recent years. 105 billion dollars is the amount of investment in fintechs in 2020, a year of crisis for many sectors. This development was possible for several reasons, such as the growing public appeal for digital solutions and the evolution of digital data storage and processing with the democratization of the cloud and open data, which enable the extensive use of data.
Fintech VS traditional bank
Right at the beginning of their appearance, fintech companies were perceived by traditional banks as a threat due to their numerous advantages for the user, such as the integration of new technologies, a much simpler service to consumers and the flexibility of online services. .
In terms of innovation, traditional banks are lagging behind with archaic and often complex procedures. The existing regulatory structure and processes mean that they cannot quickly keep up with changes and therefore do not take advantage of new technologies in a timely manner.
Making financial processes more accessible to people, especially young people and millennials, fintech operates with leaner operating models and without the complications associated with legacy systems. Furthermore, fintech can completely bypass unfavorable regulations. Thanks to a flat organizational structure, fintechs have an easier time modifying their processes, innovating and overhauling systems that no longer work.
Fintech is agile and works virtually, it is accessible to the consumer so no more travel and commitments. Access to financial services is much more accessible: on the computer or through a mobile application, a fintech offers access anytime, 24 hours a day, 7 days a week. Fintech players have a watchword that allows them to grow exponentially: advance where banks are left behind!
Fintech and the financial sector: from competition to partnership
With the growing number of fintechs already operating in the financial sector, consolidation is gradually taking place. If they are much more agile than the historical players in the financial sector, they do not announce their decline. Fintechs have started a change movement and are seriously impacting their activity. That’s why many financial institutions make these innovative start-ups allies rather than enemies.
A CGI study confirms that 73% of the 111 retail bank executives surveyed want to invest in fintech partnerships. Banks and fintechs have multiple collaboration opportunities. The advantage that banks have is that they already have a certain notoriety, an image built over the years and the trust of their customers. Fintech startups, on the other hand, are in the field of innovation, customer experience and the proper use of data. Banking products do not respond enough to the digital age and even less to a connected generation, collaboration with fintechs then becomes more than obvious.
Société Générale is the first French banking institution to collaborate with a fintech with the acquisition of Fiducéo in 2015. Added to this in 2018 is the investment in the capital of TagPay, the acquisition of Lumo and the participation in Reezocar. It continues to intensify its interactions with start-ups in France and internationally, such as Treezor. BNP Paribas has recently enriched its offer with a complete solution for managing expense reports and corporate cards in collaboration with a French-Tunisian fintech specializing in the management of professional expenses. This partnership allowed it to access a new market that was not yet served and to benefit from cutting-edge knowledge in terms of technology and security.
Fintechs are increasingly taking advantage of the investment power and infrastructure of traditional banks. A true gold mine for these innovative companies to test and implement their innovations and scale them up. For the collaboration to be mutually enriching, it is necessary to ensure the fit between financial technologies and the projects they respond to.
Collaborating with start-ups is a give and take solution that allows financial sector players to offer new services and develop start-ups. According to a study by Truffle Capital and Finance Innovation, 86% of French finance and insurance startups have formed partnerships with large companies, including 54% with banks. Partnering is a win-win alternative for SMEs and VSEs to avoid competing with large groups which, in turn, often find it difficult to keep up with technological evolution.