The Future of Banking : Strategic Alliances between Banks and FinTechs

Abstract

The impact of disruptive innovation-related modern information systems has recently changed the way businesses operate, resulting in positive implications for those willing to adapt. The digitization of financial services created opportunities for new entrants in the financial industry, known as FinTechs. FinTech refers to the use of modern technologies by nonbank businesses to deliver financial services through online software. Due to factors such as highly regulated environments and solid infrastructures, traditional banks have maintained their dominant positions in the financial service industry for a long time. Nevertheless, new entrants seek to challenge traditional banks and have the potential to reshape financial services in the near future.

This thesis explores the collaboration aspects between traditional banks and FinTechs, as well as the regulatory implications in Finland. The study's primary objective is to examine what drives traditional banks and FinTechs to collaborate rather than compete and how the current regulatory framework affects the development of the FinTech industry in Finland. This research was conducted as a quantitative survey with the inclusion of Finnish bankers, FinTech company representatives, as well as other actors with some involvement in financial technology as the target group. A total of 70 respondents from Finland participated in the survey.

According to the study's findings, the majority of representatives in each industry category believe that banks' ability to adapt to digitization is critical. As such, cooperation is seen by both sides as a beneficial alternative, allowing both parties to share their key competencies, resulting in, for example, improved and diversified banking services. However, there are certain concerns about the cooperation, which bank executives fear could exacerbate security vulnerabilities. In contrast, it was viewed that Finnish regulation had neither an incentive nor a deterrent to the development of the FinTech industry in Finland. An intriguing finding was that, on average, respondents expected regulation to be altered so that all lenders would be subject to the same regulations.