One question we should be asking ourselves as more banks launch their own financial technology or fintech subsidiaries is whether it creates a conflict.
Are the fintechs competitors to banks, or are they partners complementing each other? How are the symbiotic relationships between banks and fintechs being handled?
Yes, these fintechs are crucial because they have allowed digital payments, mobile money, online lending, savings and investment platforms, insurance technology, wealth management (robo-advisers), and even cryptocurrency and blockchain applications, and predict fraud and computer outages.
They are gradually stripping away the inefficiencies of traditional banking systems by using digital tools to lower costs, speed up transactions, and expand access.
In Kenya and Africa at large, this means enabling the unbanked or underbanked population to make payments, access credit, or save through mobile phones.
In an effort to keep up with technology, spur innovation, and tap into fintech’s hypergrowth, banks are now in a race to partner with fintechs.
Some operate as standalone or semi-autonomous fintech subsidiaries under their parent banks, a strategy that enables faster innovation outside legacy banking systems while maintaining regulatory compliance and brand connections.
Others do it differently.
A McKinsey report shows that of the top 100 banks by assets and other digitally advanced banks, four out of five have now partnered with at least one fintech company. That is up from 55 percent just two years ago.
For instance, Equity Group launched its fintech subsidiary, Finserve, about seven years ago. Nigeria’s Stanbic IBTC Holdings, in 2022, started a fintech subsidiary called Zest Payments.
Stanbic Kenya had similar plans, but last year it put its fintech subsidiary on hold just months after receiving regulatory approval. Barclays Plc partnered with Flux Systems to give customers itemised receipts on their smartphones, allowing them to see in detail how they spend their money.
Elsewhere, Bank of Kigali perhaps stands out. It operates a distinct fintech subsidiary. Bank of Kigali does solely commercial banking, while BK TecHouse, founded in 2016, serves as a digital enabler, collaborating directly with the bank to develop fintech products.
Digital adoption is no longer a question but a reality. Around 73 percent of the world’s interactions with banks now take place through digital channels, a McKinsey report notes. Therefore, without embracing technological innovation, banks risk fading into irrelevance.
However, the bank-fintech strategic alliance has to be a cautious one. The banks must remain the mothership, and the fintech the speedboat. In a partnership where this is not well understood, the favour will tilt towards the fintech, and these companies will become a significant threat to banks. Reason? Fintechs grow fast because they move quickly, try new ideas, and run simple operations, processes that can slow down once they face the strict rules of traditional banks.
Banks, by contrast, are known to be the opposite. They remain anchored in slow, rigid structures. Without proper separation, they risk being overtaken, or even swallowed, by the very fintechs they seek to control.
In fact, while partnerships between banks and fintechs have increased over the years, full acquisitions remain rare because, as McKinsey notes, ‘integration often slows decision-making and innovation cycles, undermining fintechs’ competitive advantage.’
Therefore, when a bank acquires a fintech, it must make sure that the same resources it has on the speedboat, which is a fintech, it has similar resources in the mothership, which is a bank.
Bank-fintech collaboration isn’t just a strategy; it is survival. But harmonisation, not dominance, must be the guiding principle.
Perhaps the other conversation we should be having is about neobanks, the digital, branchless units to capture the younger, tech-savvy generation that traditional banks often struggle to reach.