We previously reported how there has been a growing trend amongst FinTechs partnering with established players. Such partnerships are mutually beneficial, with the FinTech getting access to resources and the established player access to an innovative platform.
Two notable examples have recently come to light: TransferWise partnering with Raphaels Bank and Currencycloud linking up with Arkea Banking Services. Both have the prime goal of giving the FinTechs access to faster payments capabilities.
However, despite this strong trend, it appears the tide is turning. With the incredible speed of development within the FinTech sector, it comes as no surprise that TransferWise has made somewhat of a U-Turn in this regard. The global money transfer organisation has voiced its intentions to break free from its reliance on major banks.
So what is TransferWise’s strategy?
To date, TransferWise has relied on banks, including Barclays in the UK, and Community Federal Savings Bank in the US, to support its operations – specifically handling the initial link between the customer and itself. These partnerships have proved successful for TransferWise, allowing it to gain the initial foothold it needed as a small FinTech to build up to be the global player it is today – it is currently one of the world’s most valuable FinTech start-ups, worth over US$1BN in its most recent fundraising round. However, despite these positive initial benefits, TransferWise has the view that similar partnerships may act to restrict it.
A key pain point for TransferWise is regulation. This is especially true within the US, where money transfers are overseen on a state-by-state basis. The result is at best restrictive, but at worst legislative. Earlier this year, New Hampshire state regulators fined it US$16,000 for not having a local presence. Scenarios such as this have acted to drive TransferWise to seek its own state licences, rather than relying on a local partner. This approach has a dual benefit – not only is TransferWise able to avoid legal complications, it is able to give it more autonomy and flexibility as an organisation. This potentially enables TransferWise to cut costs and offer a wider array of features, enhancing the overall customer experience.
Is independence the way forward?
If TransferWise manages to flourish as a result of its new found independence, this may act to drive other FinTech players to do the same. However, it is important to remember that not all FinTechs will suddenly move to be independent. For the time being, it is likely that the smaller start-ups will continue to rely on the banks to provide them with much needed initial grounding. Once more established and with their own dedicated resources, then they will potentially go at it alone. Either way, it seems likely that there will be a shift in the status quo.