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Size also matters. Fintechs generally lack the financial
The potential for growing resources of FIs. Even a midsize bank has more assets
than the largest fintech," Brown noted. The consultancy
electronic payment volumes in McKinsey & Co. addressed this and other evidence of
emerging markets – where large banks' "resilience" in a 2016 white paper – Cutting Through
the Fintech Noise: Markers of Success, Imperatives for Banks.
swaths of populations are unbanked
but have access to mobile devices "In the eight-year period between the Netscape IPO and the
acquisition of PayPal [one of the winners of this era] by eBay,
– is huge. Ditto for cross-border more than 450 attackers – new digital currencies, wallets,
payments, particularly in networks, etc. – attempted to challenge incumbents. Fewer
support of ecommerce. than five of these survive as stand-alone entities today,"
the consultancy wrote. "[I]t is tough to disrupt banks."

FIs have been leveraging their infrastructure advantages
be used by U.S. entities sending money to individuals or through cooperative industry initiatives like Zelle, a
businesses in Africa. "So if you're in Africa you can engage mobile person-to-person (P2P) network developed by
in commerce in the United States," he added. Early Warning Services LLC, a bank-owned technology

Americans are slow to change payment habits provider. Participating FIs and payment processors,
combined, serve more than 86 million U.S. mobile banking
While developing markets hold much promise for fintechs, customers, according to Early Warning. Brown said many
particularly fintechs facilitating payments, a majority of of these will likely continue working with competing
Americans have long-standing relationships with FIs. (Just mobile wallets, like Apple Pay.
7 percent of U.S. households are unbanked, according to
the Federal Deposit Insurance Corp.) Successful fintechs are those that "embrace 'co-opetition'
and find ways to engage with the existing ecosystem
And although fintech alternatives, like mobile payments, of banks," McKinsey stated. PayPal, for example, gets
have been hyped for years, they aren't displacing credit or merchant acquiring services from Wells Fargo, the
debit card transactions, noted Morgan Stanley & Co. LLC consultancy noted. Hundreds of banks have partnered
Executive Director James Faucette. "Consumer payment with Apple Pay, which also uses the card networks.
behavior is slow to change, as evidenced by the continued
use of cash and checks," Faucette said. "It has taken several "There has been a shift toward more cooperative business
decades for the incumbents to establish the widespread models," Brown said. Analyses by First Annapolis
presence they have in most developed markets today. This revealed that about three-quarters of venture capital
creates high barriers to entry." money invested in fintechs over the past year has involved
companies with cooperative business models. "That's a
It also provides banks and other payment titans with major reversal from the past," Brown added.
time to ramp up responses, either through proprietary or
joint initiatives, or strategic acquisitions and investments, In the 2017 Fintech Disruptors Report, produced by ACI
Faucette said. In the meantime, many fintechs are opting Worldwide and MagnaCarta Communications, Paul
to use existing networks, like Visa and Mastercard, to Thomalla, Senior Vice President, Corporate Relations and
support their new payment schemes. Development at ACI, said collaborations will continue.
"Banks are much less experienced at building ecosystems
Mobile wallets are the most obvious example. The leading than the big tech players," he wrote. "However, there
wallets (Apple Pay, Android Pay and Samsung Pay) depend is a mutual advantage of partnering with fintechs that
on the existing card payment rails. (So does Square.) A often find it easier to work with a bank that has passed
recent survey of consumers revealed that more than half regulatory compliance and can accept insured customer
of those using the leading wallets have more than one deposits."
credit or debit card attached to the wallets. The survey,
conducted by First Annapolis, also found consumer Not every fintech is a potential partner. Some are purchase
satisfaction levels with the wallets is high; however, many targets for banks and larger technology firms. "Many don't
indicated they'd prefer mobile wallets provided by their have compelling offerings," Elitch said. "So they're looking
FIs rather than device manufacturers. for bigger companies [buyers] that can take what they
have and integrate" with their own offerings. Success is
This trust factor can be an important differentiator. "It's iffy. "Probably 90 percent of these companies aren't going
not a small group of customers who don't trust anybody to be around in a few years," Elitch said, adding that
but banks," Peterson said. when selecting partners and acquisitions, "you have to be
careful."

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