• 19 Oct 2021
• 2021

BANKS SHAKE HANDS WITH FINTECH (part 2): What criteria do Banks – Fintech choose their partners?

Banks shake hands with Fintech (part 1) – The reality of Vietnam has clearly shown the trend of cooperation between the Banks and Fintech in Vietnam. . We continue to learn how Banks - Fintech will shake hands andcooperate? What are the advantages and disadvantages? And in the process of exploring cooperation with Fintech companies, instead of worrying about losing market share or the risk of changing management structure, banks will be more concerned about the security of bank and customer information. Let's find out to answer these questions.

To assess the micro-effects and the criteria that Fintech companies and banks use to select affiliate partners, the authors have surveyed two groups of subjects: High-class, middle-class managers of banks and Fintech companies.

At commercial banks, a stratified sampling method is used to identify two types of Vietnamese banks: group 1 is comprised of joint-stock commercial banks (CBs) owned by the government over 50% (code: SCB), and group 2 is formed of other joint-stock commercial banks (code: CB). At Fintech companies, group 1 is Fintech companies established and operated for more than three years (code: Fintech1); Group 2 is companies less than three years (code: Fintech2). After stratifying into banks and Fintech companies, a sampling balanced stratification method was applied to select each group of 3-5 banks/Fintech companies, representing each group participating in the interview. These groups are selected according to similar criteria in terms of size, business activities and target customers.

The team of authors used interview questionnaires based on research documents of consulting firms KPMG, PWC. The results show that the remarkable points in the implementation of the Bank-Fintech handshake are as follows:

Fintech companies cooperate with banks: competition or cooperation!

In terms of the Banks: when asked if they are concerned about the risk of a decrease in the bank's market share due to Fintech competition, most of them said they are concerned, but not too much. Banks are stronger than Fintech in the customer network, scale, and reputation with many e-banking services. On the other hand, SCB has customer segments such as large enterprises, traditional customers of the bank, which are competitive advantages that Fintech is difficult to approach. Regarding the change of banking products before the development of Fintech companies, banks all think that banking products have changed and will change a lot, especially deposit and payment products. All banks provide e-banking services and link payment gateways with Fintech companies in the payment field.

In the process of competing and cooperating with Fintech companies, SCB identified that some technology software needs to be integrated between the Bank and Fintech, leading to changes in personnel and management structure. Nevertheless, the benefits of cooperating with Fintech are helping the bank promote financial inclusion, help reduce costs, increase revenue, innovate products, and increase customer base. In addition, SCB believes that cooperation promotes the bank's restructuring, distilling high-quality human resources and efforts to innovate internal management.

In terms of Fintech: companies believe that cooperating with banks helps them increase brand awareness; increase customer confidence; access to capital; take advantage of the bank's experience in establishing legal regulations in business activities; learn about bank risk management. However, the benefit of "taking advantage of the bank's vast distribution network" has been received mixed opinions of some FT2s. They said that Fintechs mainly rely on electronic connections, not depend on other bank distribution channels.

Together exploiting the payment market, personal consumption finance is one of the goals for the Banks to shake hands with Fintech.

Obstacles when Banks and Fintech cooperate

Obstacles banks may encounter in the cooperation process include confidentiality of banking information and the confidentiality of customer information. Ensure internal network security. The obstacle when Fintech cooperates with banks, they are too different in organizational culture. To cooperate, the two sides need to understand each other's culture and differences. A few Fintech companies think that their scale is too tiny that banks do not want to cooperate. In addition, the incomplete legal system with complicated procedures hinders the cooperation process of both sides.

Criteria that banks set when choosing Fintech partners to cooperate

Banks consider that the reputation and management experience of Fintech companies are essential criteria for choosing Fintech partners. Other measures such as the mechanism of action, financial capacity, Fintech's superior technology are also highly appreciated to increase customer satisfaction.

Strengths of Banking and Fintech

Specific strengths of banks compared to Fintech companies include suitable risk management mechanism; tight legal document system, modern technology infrastructure; Scale advantage; Wide distribution channel; Know Your Customer (KYC). On the other hand, most banks agree that the outstanding strengths of Fintech are: data management and processing; the development of information technology; acumen, innovativeness; Fintech services help save costs and time for customers and provide rich experiences.

Fintech companies have cooperated and will cooperate with banks

The fields that have been and will be cooperated include electronic payment connection, Personal financial advice, Peer-to-peer lending, Blockchain technology development, and Artificial Intelligence (AI). And other products such as Big Data mining; Cloud computing; Cybersecurity, and robotic process automation.

In general, most banks have positive views about the cooperation with Fintech companies in the above fields, especially in AI application, Big data mining, Cybersecurity, Robotic Process Automation.

The research results have been identified quite clearly on which criteria the Bank - Fintech are based. View the entire research paper "4.0 Banking: Banks – Fintech Cooperation in National Financial Stability", see details here.

Team of authors: Dr. Hoang Hai Yen, Dr. Nguyen Thi Hong Nhung, MSc. Nguyen Thi Thuy Duong (Ho Chi Minh City University of Economics) & MSc. Vu Bich Ngoc, MSc. Tran Hoang Truc Linh (Ho Chi Minh City Open University).

It is an article in a series of articles that share research and applied knowledge from the University of Economics Ho Chi Minh City. Readers are warmly welcomed to article 04: "Fintech handshake bank (part 3): Supporting solutions".

News, photos: Team of authors, Department of Marketing and Communication.