The agency banking model has been hugely successful, supporting thousands of firms to deliver financial services by working with partner banks.

However, it appears that for some fintechs across the UK and Europe, it isn’t working as well as it used to. That’s the conclusion of our latest research ‘How well are fintechs served by banks? The state of agency banking across the UK and Europe’.

We first conducted this research in 2020, to understand how the market had evolved and whether fintechs were receiving the support and services they needed to be successful. It found that these relationships were often product and transaction-led rather than technology and outcome-led. Fintechs referenced service outages, rising costs, issues with APIs and even regulatory intervention because of their banking partners.

Fast forward to 2024 and, at first glance, the results paint a picture of an industry that is doing fine. But a deeper analysis reveals that legacy banking providers have stood still and a rising indifference towards them from their fintech clients.

The research found that:

• The duration of partnerships remains stable: 69% of large fintechs report partnerships of over four years. Smaller fintechs average around two years.
• A decline in perception of service quality: There is a notable decline in satisfaction with security, ease of use, reliability, and speed since 2020.
• Demands for banks to be more strategic: 76% of fintechs rate value and innovation from their banks as good or excellent, but banks are seen more as suppliers than strategic partners.
• Some fintechs losing faith in their banking partners: Only 29% of fintechs feel their agency banking partner has helped their business, slipping from 51% in 2020.
• Rising complacency and indifference towards banking partners: 61% of fintechs consider the impact of working with an agency banking partner as neutral to the business.

The growing apathy towards agency banking partners should be a concern, but perhaps inevitable. When fintechs partner with traditional banks, there’s an obvious tension between legacy services and processes conflicting with agile, cloud-based and API-first fintechs that perform more updates in a month than their partners do in years.

This sentiment is most starkly seen in the declining perception of how helpful these banks are. The majority now see these partners as neither helping nor hindering their business, creating a risk of being seen as simply a utility, interchangeable when there is little difference in the commoditised products they offer.

Banks and fintechs are in a symbiotic relationship, and both parts need to be innovative to thrive. If agency banks do not hold up their side of this bargain, the result will be a growing indifference towards banking partners. This is problematic as firms do not consider switching providers to be a blocker, although it is still viewed as complex, whereas four years ago many were reticent to change their agency bank.

Agency banks need to address this perception. The current period of indifference will inevitably reach a tipping point of dissatisfaction, leading to fintechs switching to providers who better meet their needs.

The answer may seem obvious, but it requires banks to proactively engage with their fintech partners. It requires looking beyond a “one-size-fits-all” approach and recognising the distinct requirements, particularly when it comes to size, and understanding the difference between small, mid-size and large fintechs. Tailoring services to varied needs can ensure banks remain a valuable partner in the fintech ecosystem.

Agency banks should also strive to be more than simply product suppliers. Fintechs are calling for them to challenge and contribute to their strategic thinking. By doing so, they can create more dynamic partnerships that go beyond basic provision of services. Not every fintech is the same, and they are all seeking valued partners rather than suppliers.

Our research shows that fintechs want agency banking partners who do more than provide a reliable service. They want more than a partner who is innovative. They want a partner who can challenge how they think and who can help inspire them to think differently.

As firms demand improved scalability, resiliency and security, the increasingly negative perception towards their agency banking partners should be cause for concern. It appears, from these results, that current legacy agency bank partners may struggle meet fintechs requirements.

This will only be magnified by the incoming SEPA Instant mandate, which requires all consumer and business payments to be processed within 10 seconds. With some agency banks clearly struggling with already stretched IT and development resources, the demands to make significant infrastructure changes could result in further issues for the fintech clients.

It’s something we recognised and spent a lot of time thinking about at ClearBank. We saw that the agency banking market needed a new approach, so we built a bank that made infrastructure faster, safer, more reliable, and easier to access for all. To support firms by providing the services that the incumbents were failing to.

While this research reveals a declining sentiment towards incumbent agency banking providers, newer entrants such as ClearBank are changing that perception. With infrastructure offering accounts and 24/7 real-time payments, all delivered through an API, they’re enabling fintechs to focus on delivering the best possible customer experience.