Could the FinTech revolution lead to more collaboration?

In the north-east of England in the late 19th century, two soccer teams had a bitter rivalry. Newcastle East End and Newcastle West End would meet up on cold, rainy nights and compete for the honours of being crowned the best in the city.

The problem was, both had major failings. The club on the east side of town had more financial strength, while the westerners played in the better stadium – the historic St James' Park.

The solution? Rivals became partners, and the teams merged in 1892 to form Newcastle United. A few years later, the club would win three championships at the peak of the English soccer league, and in 1999 became the fifth richest club in the world.

The moral is that sometimes collaboration with competitors works in the best interests of everyone involved. That's certainly something we see when it comes to financial technology – or FinTech for short.

Changing the game

The payments industry used to rely on financial expertise and a loyal customer base. People wanted reassurance that their money was in the right hands, and only a few companies could boast that reputation.

Today, the payments sector is one of the most digitally disrupted in the world. Transactions are made through third-party apps, and customers have willingly jumped on board thanks to the ease of using a centralised service.

Payments have been hit hard. PwC's Global FinTech Survey for 2016 found that a huge 87% of incumbents say at least some part of their business is at risk to FinTechs. As a result, a dip in revenues of more than 25% could be felt among these incumbent businesses by the end of the decade, putting serious pressures on their margins.

These companies aren't just waiting for the end, however. The survey also found that more than a third (35%) of traditional players have incorporated their own FinTech subsidiaries, the same amount have started a joint partnership with a FinTech disruptor and around 10% say they acquire FinTech companies.

Just like back in 1890's Newcastle, one side has the money (for now) and one has the infrastructure, making a real incentive for both to collaborate. With a common enemy on the prowl, it might be time to start taking that option seriously.

Why can't we be friends?

The Global FinTech Survey also found that investments in cybersecurity and fraud are top of the priorities list for payment companies. With margins being constantly squeezed by the pressure of new market entrants, the ability to keep customer information safe is going to get more and more strained.

Meanwhile, customers themselves are demanding more, including quicker access to information, seamless functionality and overall better experiences. Collaboration could be essential in creating the ability to drive better value and customer service.

That being said, working together might not be the best option for every payment company, but learning what has made FinTech so successful is certainly a lesson for everyone in the industry to take. Fortunately, it seems that the majority of executives are on the same page.

A significant 84% of payments executives polled in the PwC survey believe that FinTech is central to their overall strategies, while only 60% say the same across all financial sectors – including banks, asset management companies, insurers and others.

Showing that the reasons for FinTech success haven't passed them by, 71% even say their business is "fully or very customer-centric", again compared to 59% in the wider sector.

The financial sector no doubt has disruption on the mind. Whether businesses like it or not, FinTech companies are making huge waves, and fighting against the tides of change may be a waste of energy.

With New Zealand's innovative and collaborative nature, could we be the ones to bring FinTech and the traditional financial sector together for the greater cause? Let's hope so.