Kruszka argued that the first charge card, developed in the 1950s, gave way to our current purchasing system.
“Charge cards naturally led to credit cards, the first being Bank AmeriCard from Bank of America,” he said. “We may not remember much about Bank AmeriCard today — now we know them better as Visa.”
“Most banks don’t even want to be a bank,” Bjornstad quipped, citing regulation and compliance challenges that they face.
“Fintechs, on the other hand, can have the best of both worlds,” she added. “They get to differentiate, create new financial services.” Fintechs get to do this, she said, without the cost and red tape of becoming a full-fledged bank.
Lieberman countered that nothing in the financial services space is truly innovative because it’s built on processes and services that have been around for centuries. She argued that the difference lies in the responsibility that rests in the hands of banks.
“Fintechs have permission to fail. They can try and try again,” Lieberman said. “Banks, not so much. They have completely different responsibilities and ways of doing business. It’s like the older versus younger sibling — what is permitted for one isn’t permitted for another.”
“There’s no such thing as black and white, only shades of gray,” she said.
How Banks and Fintechs Can Collaborate for Good
While a friendly rivalry can encourage innovation, fintechs and traditional banks can boost their accomplishments by working together, particularly when it comes to serving communities that are historically unbanked or underbanked.
Lisa Mensah has seen this firsthand. In a session about collaboration in financial services, the president and CEO of Opportunity Finance Network said that many of the small businesses her organization works with have become wary of fintechs after getting rapid loans that ultimately hindered their growth.
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“Many of our members have seen the negative side of this,” Mensah said. “There is suspicion and caution and fear. They’ve seen the side that didn’t work.”
Mensah’s organization works with community development financial institutions (CDFIs), which often have different needs than traditional lenders. Many of the businesses Opportunity Finance Network works with need not only financing but also additional support and knowledge about what is available to them.
“We typically come to customers with not just the money, but with the services, with notices, with market help if they need it,” Mensah said. One business needed what Mensah referred to as “capital-plus.”
“They needed not just capital, but they needed to be called about the PPP. They needed to know there was a service. They needed the terms of their existing debt stretched,” she recalled. “It’s not just a number.”
Early-stage fintechs that want to partner with financial institutions such as CDFIs need to understand the mission of these organizations. That’s also true of fintechs that want to partner with big banks to grow their organizations.
“As you walk into a big bank, you have to understand its perspective and where it’s coming from,” said Maria Gotsch, president and CEO of Partnership Fund for New York City. “Acknowledge those things up front.”
Gotsch said that one mistake many young companies make is that they see their product through their eyes alone, instead of positioning it within the context of a prospective partner.
“What often gets lost is, why should anyone else but them care about the product?” she said. “Your potential customer or partner is only going to care about what you’re doing if it’s solving a problem for them.”
Partnering with the right organization can not only help banks and fintechs grow, but also can lead to positive outcomes in communities. The financial services siblings may have a healthy competition, but they are most successful when they work hand in hand.
