2.2. Theoretical and Conceptual framework
2.2.4. Opportunities and challenges in Fintech- bank cooperation
As there is a lack of researches on both opportunities and challenges Fintechs receive when collaborating with large partners, comparing results found there will yield richer results(Gviniashvili, 2019). Similarities and differences between the presented researches and the author's findings in this thesis would be elaborated in the discussion section. Previous studies mostly identified both opportunities and challenges in Fintech-banking cooperation (Manatt, 2016; Bose et al., 2018;
Heggland & Nadav, 2019; Niemela, 2019). Others focused only on the opportunities (Bomer & Maxin, 2018) or challenges (Thwaits, 2016; PwC, 2017;
Deloitte, 2018; Gviniashvili, 2019; Accenture, 2018). Most of these reports included benefits and risks for both sides of collaboration, yet for this thesis, only the views on Fintechs would be presented.
a) Opportunities in Fintech- bank cooperation
Especially, within the scope of the study, the advantages of cooperation for startups as Finsify would be emphasized. Although start-ups tend to have
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advantages in terms of technology and skills (Brouthers et al., 1995), they usually have constraints in terms of capital, legitimacy, undeveloped organizational structure, incomplete or non-existent business processes, marketing skills and distribution channels (Freeman & Engel, 2007). The lack of these capabilities can hinder the commercialization of the early-stage technology of start-ups (Kelly et al., 2000) and make them dependent on getting investments from investors more than the revenue generated through sales (Brouthers et al., 1995). Therefore, for young firms, being able to gather the necessary resources for commercialization rapidly is important (Katila et al., 2008).
Firstly, strategic alliances can provide start-ups faster access to essential resources including technical, social, competitive and commercial resources that otherwise would have taken a longer time to acquire alone (Ahuja, 2000; Kelly et al., 2000), and help commercialize their technology (Stuart et al., 1999). In this sense, alliances can be seen as an enabler of the transition from invention to innovation for an entrepreneurial firm. This can include letting the start-up access a critical customer mass, commercialize their technology, and generate revenue(Manatt, 2016; Niemela, 2019). Secondly, at the same time, alliances with a well-known partner can help start-ups can overcome the “liability of newness”
(Baum et al., 2000). This is done by giving or strengthening the credibility of a young firm, which increases trustworthiness and reputation in the market and thus attracts more partners and customers (Baum et al., 2000). These benefits can be substantial for startup companies as due to the high rate of failure of startups, most new entrants have been characterized as unstable partners (Baum et al., 2000; Bose et al.,2018; Bomer & Maxin, 2018). However, start-ups face a number of challenges and risks when collaborating with large partners. Challenges and risks for start-ups in alliances will be further elaborated in the following section.
23 b) Challenges in Fintech- bank cooperation
Strategic alliances are characterized to be risky (Brouthers et al., 1995) with a high rate of failure (Das & Teng, 2000). Unsuccessful alliances can have negative consequences, especially on small start-ups as they might lack the resources to recover from the economic losses and find new alliance partners (Comi & Eppler, 2009). Consequently, the elimination of risks associated with collaboration has a positive effect on alliance likelihood (Das & Teng, 1998).
According to previous research, the most common challenges for start-ups are to navigate in large companies, find the right contacts, and slow decision-making processes by incumbents. Furthermore, gaining access is an expensive and time- consuming process for inexperienced and resource-constrained start-ups, and corporates staff might be of little help to connect start-ups with the right people within their company (Thwaits, 2016; Gviniashvili, 2019 ). Also, slow decision- making delays testing technology and implementation (Thwaits, 2016; Deloitte, 2018; Gviniashvili, 2019; Accenture, 2018) and burns scarce resources for the start- up. In addition, power imbalance issues, lack of trust, lack of experience were also identified by authors (Thwaits, 2016; Gviniashvili, 2019). Table 1. summarizes findings from the mentioned research.
Table 1.2. Summary of challenges for Fintech startups
Challenges Thwaits (2016)
Deloitte (2018) Accenture (2018) Gviniashvili (2019)
Organizational structure
Difficult to navigate and find people at a decision level
Long sales cycles due to time-
consuming access to the right people
24 Slow Decision-
making
Banks are slow decision- makers
Port of entry lacking to fast- track fintech proposals
Prospecting is slow:
Related to lack of budget, competition with an internally developed product, perceived risk that the fintech product would displace an internal team or sunk costs in legacy technology
Incumbents are slow in decision making due to bureaucracy,c ompliance, and regulatory issues, the absence of clear structure
Slow Implementation
(PoC)
Once FinTechs are inside, financial
institutions’
structure and governance constrain
finalization of deals and delay experimentation
Why products stall (PoC): Fintechs stress lack of dedicated
employees or funding resources, and lack of alignment between use cases and product roadmaps.
25 Power Imbalance Banks
decide terms of collaborat ion do not treat FinTechs as equals Banks misuse their power and actively steal ideas and resources from start-ups
Sometimes incumbents might try to misuse their power by attempting to get exclusive partnerships or try to get more revenue from the deal
Slow Implementation
Once
development is underway, siloed financial institutions keep fintechs from getting
initiatives implemented
Procurement takes too long: Addressing regulatory issues and prepare for a wider launch Security &
compliance along with lack of time from staff at financial institutions delays
implementation
26 Lack of
experience
The immaturit
y of
Fintechs such as newness, youth, inexperie nce and lack of exposure are
barriers to them
Lack of trust Uncertainty
from incumbents regarding the technology can be caused
by the
newness of a technology that has not been tested and tried in the market before
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