• CFRED CUHK Law

How Do Banks Interact with Fintech Startups?

Lars Hornuf – University of Bremen, Milan Klus– University of Münster, Todor Lohwasser – University of Münster, Armin Schwienbacher – SKEMA Business School


--In their article How Do Banks Interact with Fintech Startups?, Lars Hornuf, Milan Klus, Todor Lohwasser, and Armin Schwienbacher examine a phenomenon of rapidly growing importance in the financial industry, namely alliances between banks and young ventures that offer technology-driven financial services (fintechs). The topic is critical for the future development of the banking sector – one of the most traditional and conservative sectors in the economy – as some of the new digital innovations created by fintechs have the potential to reshape or even crowd out some of the business activities of banks. Furthermore, a lack of legacy infrastructure and comparatively low level of organizational complexity often enable fintech firms to be more agile, innovate faster, and be more radical in their approach to innovation.


To confront the threat of technology-driven firms, more and more traditional banks have engaged in strategic alliances with some of the newcomers (see Figure below). These alliances can be mutually beneficial, as partnering with an established player in the financial industry can help fintechs to obtain access to a broader customer base, gain access to superior knowledge in how to deal with financial regulations, and enhance their own brand awareness and reputation.

Figure: Emergence of bank–fintech alliances by country and year. The sample includes 500 fintechs from 27 countries collected from 2007 to 2017. The figure shows the cumulative number of alliances in each year, grouped by the banks’ home country.


A particular focus of the research article lies on the number of bank-fintech alliances that have been established in developed economies and the factors related to different forms of alliances such as investments or product-related collaborations. Based on hand-collected data covering the largest banks from Canada, France, Germany, and the United Kingdom, the authors show that banks are more likely to collaborate with fintechs when they pursue a digital strategy and/or employ a chief digital officer. Furthermore, the bank’s financial situation, as measured by the return on average assets, is a relevant predictor for explaining the number of new alliances in which a bank becomes involved.


In this context, the authors show that large banks are more likely to become financially engaged in fintech firms, with smaller fintechs being preferred. Alliances across the four countries examined are most often characterized by a product-related collaboration, which is a comparatively less institutionalized form of alliance that offers little or no control in the product development process of a fintech. This raises the question whether banks use this form of alliance to outsource their innovation activities and thereby become increasingly dependent on fintechs and other partners for ensuring digital transformation. In this context, an analysis of the market effect of publicly announced alliances revealed that announcements of such alliances have a negative effect on the bank’s value for short-term windows, which might be an indication that markets indeed believe that banks should develop new digital services themselves rather than engaging in alliances with fintechs.


By investigating alliances between banks and fintechs, the article sheds light on an increasingly relevant but so far under-researched topic, thereby contributing to the empirical literature on financial innovation and providing insights into different fintech business models.

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