The Right Kind Of Partnership

TransferWise has been all over the news recently, and for all the right reasons.

First it grabbed headlines by becoming the first non-bank to join the Bank Of England’s payment system. Now it’s breaking new ground in partnering with France’s second largest bank.

The fintech space is rife with stories of fintechs that aspire to become banks. As the saying (sort of) goes, if you can’t beat them, become them. TransferWise has long harboured ambitions to become a broad-based banking platform, and its approach to date has been to self-consciously “disrupt” incumbents who charge higher fees for international money transfers. This became even more apparent when the startup launched its “Borderless” account, a banking product that includes a debit card and allows customers to deposit, send and spend money.

This week brought news that TransferWise is partnering with BPCE Groupe, France’s second largest bank, with more than 8,200 branches nationwide under various guises. TransferWise will provide international money transfer services for BPCE’s 15 million customers. It will be interesting to see if TransferWise’s tone of voice adapts and softens as they begin collaborating with the banks they have for so long criticised.

Providing partners with API access to power their own international money transfers isn’t a new approach, but the scale of the partnership is impressive. This is a shot in the arm for the fintech sector and yet another sign of how far we’ve come. This marriage of old and new, startup and powerhouse, demonstrates that partnership is now an essential ingredient of modern banking and a strategic priority for management across the street.

The key to building meaningful partnerships is scalability. For large incumbents to adopt new technology and offer it to their customers, it needs to be bulletproof, easy to integrate with existing systems and cost-efficient. In short, it needs to be scalable. TransferWise are reaping the benefits of their forward-thinking approach to platform development. By building an open-architecture, API-based environment, they can provide banks and their customers with access to their offering at scale.

Questions continue to swirl around TransferWise’s long term strategy. Is it serious about partnering with large financial institutions in order to help them modernise their offerings and exploit the benefits of progressive new technologies? Or is it partnering with large financial institutions simply to piggyback off their traditional retail banking networks? Is this a convoluted bait and switch manoeuvre designed to accelerate growth?

These questions have serious implications for our industry that go beyond one high profile strategic partnership. Established players are under pressure to provide the cohesive full-service offering demanded by customers, who are becoming more sophisticated by the day, and it makes complete sense to partner with innovative players to execute on this promise.

As challengers enter the industry, they tend to focus on discrete verticals, which enables them to invent and ‘own’ product categories and drive engagement with highly targeted marketing. They don’t try to be all things to all people. This has worked well in sectors as wide ranging as hospitality (AirBnb), transportation (Uber) and food (Pret A Manger). But it’s much harder to achieve in banking, as customers tend to want full-service offerings. This gives established names with well developed infrastructure a significant strategic advantage.

But large financial institutions must not rest on their laurels. They need to work much harder to assert the benefits of banking with them. They need to communicate better, demonstrating the benefits of their franchise. These might include security, better regulatory oversight, cross-platform experiences including high street presence, great customer service, full-service offerings, or simply a long track record of successful delivery.

At Origin, we believe partnership is the way forward. It accelerates technology adoption and drives innovation across financial services. But we also believe that banks should be highly selective in who they partner with, and work hard to protect their precious franchises from erosion.