How can incumbent retail banks leverage fintech collaboration to drive value creation?

Details

Supervisors

Henrard, Luc

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

The financial industry has been characterized by a few waves of innovation but no real revolution so far. However, this paradigm changed with the rise of fintechs. Since the 2008 financial crisis, these new financial technology players are redefining the financial landscape. Their innovative business models have been successful both among consumers and venture capital funds. Retail banks, despite their strong position, need to address this disruption. Through an extensive literature review, and interviews with three financial experts, it was discovered that retail banks could create value by collaborating with fintechs. As a matter of fact, due to the high level of technology-related business model innovation (BMI) threat and the low to high level of market-related BMI threat that fintechs pose, the collaboration/acquisition strategy is identified as a relevant answer for retail banks. Collaborating would allow banks to either address their own weaknesses to secure their market share (defensive approach), or to leverage new opportunities to create additional revenue streams (offensive approach). The value they create by partnering with fintechs can be transformative and financial. Several models exist to support this inorganic growth and range from collaboration to shareholding, with the best choice depending on the strategic objective of the bank as well as the fintech vertical targeted, and it is overall very case specific. Empirical evidence shows that this collaborative approach is already at the center of retail banks’ transformation, and that such partnerships are vectors of value creation for both sides.