WhiteSight

The UK Big Banks’ Bet on FinTech

Table of Contents

The dawn of the digital age in the financial sector has paved the way for increased alliances between incumbents and FinTechs. In an attempt to bolster the UK’s FinTech sector, FinTech Pledge, developed by the Fintech Delivery Panel with support from HM Treasury (HMT) as an initiative aimed towards creating a financial ecosystem by enabling enhanced collaboration between banks and leading FinTech firms, was launched in 2020. In 2022, the Big 4 UK banks – Natwest, Barclays, Lloyds and HSBC – have been busy walking the talk through their ecosystem-focused initiatives and are moving the needle on the Bank-FinTech collaboration mandate.

Going after isolated partnerships seems to be a thing of the past for the UK High Street banks. The Big 4 have instead resorted to forming an ecosystem of FinTechs with an array of carefully curated alliances that help them unlock ecosystem orchestration at scale. The symbiotic collaboration mainly revolves around a few key ecosystem orchestration themes, including:

i) Platform-as-a-Service, a utility-based model that allows clients to develop, run and manage banking applications in the cloud,

ii) Banking-as-a-Service, the provisioning of banking products and services through third-party distributors,

iii) Innovation Sandbox, brings a variety of FinTech collaboration opportunities through an efficient design and test cycle, enabling the bank to support a rich ecosystem of FinTechs with reduced time-to-market, and

iv) Corporate Innovation and Venture Building, involves a suite of initiatives targeted at FinTech founders across the globe – from early-stage to scale-up and beyond – to help grow and develop their companies.

HSBC’s $35M investment in Monese is aimed towards developing the FinTech’s cloud-based Platform-as-a-Service business. According to Taylan Turan, Group Head of Retail Banking and Strategy, Wealth and Personal Banking at HSBC, “this new partnership is a key step towards helping us deliver digital wealth and banking tools at pace and scale, combining Monese’s FinTech credentials with our own global wealth and banking capabilities.

NatWest teamed up with Vodeno Group to create a Banking-as-a-Service (BaaS) business in the UK by combining Vodeno’s technological and operational capabilities and its cloud platform with NatWest’s banking technology and UK banking licences. The BaaS proposition is aimed at meeting the evolving needs of business customers by enabling them to embed financial products such as payments, deposits, point-of-sale credit, and merchant cash advances directly in their own propositions and customer journeys.

The development of the UK FinTech industry is also propelled by a set of unique FinTech collaboration and co-creation initiatives launched by the incumbents, as described below.

In October 2022, Lloyds unveiled the launch of its Innovation Sandbox, developed in partnership with NayaOne, to increase collaboration with FinTechs and improve the bank’s digital products. The Bank has already conducted several experiments on the Sandbox, allowing various parts of the Group to collaborate with potential partners at pace and to develop products collaboratively.

Vic Weigler, Chief Technology Officer at Lloyds Banking Group, articulated the aim of the Innovation Sandbox as follows: “The launch of the Innovation Sandbox has improved our ability to experiment and learn with FinTechs at pace. We are working to maximise the value of the Sandbox and increase the velocity of technology-led innovation in supporting our growth strategy.

In the first quarter of 2022, Barclays teamed up with Rainmaking to introduce a set of initiatives focused on helping FinTech founders grow their companies. These initiatives include the current and future launch of:

    • Rise Start-Up Academy, a virtual digital skills-building accelerator targeted to the idea- and early-stage FinTech founders.
    • Rise Growth Academy, a capability development around key areas such as investment readiness, recruitment, accelerating sales and leadership development.
    • FinTech Venture Studio to promote co-developing new FinTech ventures through working with internal talent, start-ups and other leading companies.

These efforts remain in line with its chief innovation officer Mariquit Corcoran’s statement: “We have been humbled and changed by the incredible FinTechs we have worked with, and we understand first-hand the power of collaboration to evolve and unlock opportunities for our customers, clients, colleagues and the communities in which we operate.”

In the face of a challenging economic situation, the Big 4 High Street banks seem to be focused on their aggressive FinTech collaboration strategy to build resilient business models and efficient operating models. These partnerships seek to focus on a wide range of unique use cases, including payments, Open Banking, lending, embedded finance, SMB banking, and digital assets.

NatWest’s recent partnership with Token, Tink, and Yapily, in addition to existing ones with TrueLayer, GoCardless, and Crezco, is aimed towards providing variable recurring payments for non-sweeping services. Lloyds teamed up with BillHop to offer a B2B payment solution, and HSBC provided a $50M credit line to Mexican FinTech Clip in a bid to develop innovative payment solutions. While most of Barclays’ investments are aimed at uncovering potential lending opportunities, its interest in crypto infrastructure was established by its investment in crypto custody platform Copper. Lloyds’ collaboration with Bink to offer loyalty programmes to its retail banking customers and HSBC’s investment in TransFICC further signifies the wide range of use cases banks are looking to explore via their partnerships with FinTechs.

Bank-FinTech Collaboration Outlook for 2023

The UK FinTech industry attracted ,$9.6B in investments in the first half of 2022, only second to its ,US counterpart. The Big 4 banks have remained committed to backing FinTech firms that are disrupting traditional banking practices. With the year almost drawing to a close, and collaboration and co-creation initiatives gaining momentum – 2023 looks to be a pivotal year where we may witness the accelerated collaboration between banks and FinTechs, focused on mutual value creation through the launch of innovative products and expanding reach to underserved customer segments.

Authors

Founder & CEO | sanjeev@whitesight.net

Sanjeev is a fintech aficionado who loves to explore the depths of the industry as much as he loves to explore the depths of the ocean in his scuba gear. He is the founder and CEO at WhiteSight, bringing a wealth of research and advisory experience to the fintech world.

Senior Research Associate

Risav is a senior research associate at WhiteSight, where he spends his days navigating the complex fintech landscape and poring over market trends. When he's not decoding the world of fintech, you'll find this sports fanatic decoding the perfect curveball on the football field.

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