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How Bank-FinTech Collaboration is Powering Payment Innovation & Digital Banking

Read | Aug 25, 2025

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AUTHOR(s)

Sandeep Chakravadhanula

Practice and Capability Lead – Financial Crimes

Key Points

Bank-FinTech collaboration is shifting from disruption to partnership, with payments emerging as the focal point of innovation and ecosystem modernization.
APIs, open banking and PayTech integrations are enabling instant settlements, lower transaction costs and compliance-ready digital banking ecosystems.
This article examines how such partnerships are evolving from product delivery to advisory-led models, unlocking scalable, customer-first financial services operations for the future.

The global banking industry long viewed the rise of FinTechs with skepticism, as agile disruptors working away at the edges of traditional financial services, challenging the status quo. However, over the past decade, the dynamics between banks and FinTechs have matured.

Rather than duplicating efforts, the industry has recognized that innovation thrives best in partnerships, with bank-FinTech collaboration creating new value and becoming mission-critical in the process. FinTechs combine cutting-edge technologies and agile development cycles with a laser-sharp focus on user experience. Banks, on the other hand, bring decades of infrastructure, financial crime and compliance frameworks, and customer trust.

A recent study highlights this collaborative trend, with rising adoption of FinTech solutions by banks across digital banking (43 percent), regulatory technology (46 percent) and open banking Application Programming Interfaces (API) (45 percent).¹

Nowhere is this shift more pronounced than in the banking payment space. Payment facilitation has become the leading area of collaboration, with 39 percent of US banks already collaborating with FinTechs and another 39 percent planning to do so. Together, they are re-defining how banking payments are processed and settled, laying the foundation for a more agile, transparent and future-ready financial ecosystem.²

Fueling Ecosystem Modernization Through Bank-FinTech Integration

The rise of FinTech and PayTech firms has accelerated digital innovation within financial services, raising customer expectations. For instance, consumers are increasingly demanding faster and more convenient payment options, with research showing that 77 percent expect businesses to offer instant payments.³

Businesses across the financial ecosystem acknowledge this shift, as well. Payment speed is a key priority for midsize businesses, driving interest and adoption of instant payment options, while 61 percent of merchants expect Real-time Payments (RTPs) to provide them with a competitive edge.^4,5

While payments have traditionally been encumbered by slow processing times, manual workflows and obscure fee structures, particularly for cross-border transactions, disruptors have introduced new models that dramatically improve on these limitations. In doing so, digital innovation has not only raised customer expectations; it has re-shaped the competitive landscape.

To meet these new demands, banks are integrating their legacy systems with FinTech platforms, enabling smoother end-to-end processing and faster settlements across borders and use cases. They are actively leveraging FinTechs to modernize and expand their payment ecosystems, with several core strategies driving this integration:

Examples of such collaboration are proliferating worldwide. Take Banking Circle. The Luxembourg-based payments bank, focused on providing financial infrastructure to businesses and financial institutions, has recently partnered with Visa Direct. This enables the latter to strengthen its cross-border payment capabilities by leveraging Banking Circle’s extensive network of local clearing rails for faster, more efficient and cost-effective transactions.⁷

Elsewhere, HSBC has joined forces with cross-border payments platform Dandelion, enabling the bank to establish direct connections with local payment rails, streamlining what was once a complex chain of transactions. It means clients can now send funds to more than 100 destinations across 60 currencies, with a technical integration powered by real-time foreign exchange tracking and fraud monitoring systems.⁸

From Service Providers to Trusted Advisors

Payment innovation might represent a starting point, but successful bank-FinTech collaboration is also being leveraged across a wide array of product offerings – think digital wallets for seamless spending, Buy Now, Pay Later (BNPL) platforms for flexible financing or embedded finance capabilities for non-financial partners.

Crucially, however, this is no one-way street. While FinTechs help banks accelerate digital innovation and maintain competitiveness, they also benefit from banks' operational maturity, regulatory infrastructure and scalability to grow.

These partnerships allow each player to focus on its strengths. Banks can continue offering trusted products and services, while FinTechs build APIs, open banking networks, enterprise resource planning systems and Treasury Management Systems (TMS) that improve the overall financial ecosystem with customer-centric innovations.

This symbiotic model is already emerging. NatWest’s FinTech Growth Programme is one example, designed to empower FinTechs with the resources, networks and expertise of a high-street bank to help them scale sustainably while co-creating next-gen digital solutions.

In this context, banks must go beyond product delivery, evolving into trusted advisors that support clients with secure, streamlined payment processes. With a survey of compliance professionals in bank-FinTech partnerships showing that 90 percent of sponsor banks struggle with compliance, this kind of advisory mindset shift will prove integral to unlocking the true value of collaboration.⁹

Partnering to Unlock the Future of Financial Services

As the financial services ecosystem continues to evolve, collaboration between traditional banks and FinTechs marks a fundamental structural shift. FinTechs offer the agility, innovation and customer-centric focus required in a fast-changing market. Banks offer the trust, regulatory rigor and institutional strength that FinTechs need to scale.

Bank–FinTech partnerships are becoming foundational pillars of financial innovation, with success hinging on how effectively FinTech operations are integrated with traditional banking systems to deliver seamless, compliant and customer-first services. The average bank now engages with 9.4 FinTech partners. Yet two-thirds of these partnerships fall short of expectations, pointing to persistent challenges in aligning goals, capabilities and processes.¹⁰

Looking to the end of 2025 and beyond, the success of these partnerships will rest on transparency, shared vision and customer-first value creation. Third-party organizations can bridge capability gaps by offering expertise, tools and industry insights, from next-generation digital technologies and intelligent analytics to flexible operating models.

By leveraging their complementary strengths and engaging the right transformation partners, banks and FinTechs can not only deliver better outcomes today but also co-create the digital banking and payment innovation ecosystem of tomorrow.

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