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HSBC plans to keep pace with innovative digital tools through its investment in Monese. 

Partnering with fast-moving fintechs can help incumbent banks roll out sleek digital tools to impress existing customers and win-over new ones.

If you can’t beat them, join them: HSBC just made a $35 million strategic investment in UK challenger bank Monese through its corporate venture arm.  

HSBC’s investment is just the latest example of a neobank-incumbent tie-up: In the past several years, BBVA invested $300 million in Brazil’s Neon, Goldman Sachs invested $50 million in digital bank Starling, and Santander led a $40 million investment in credit-focused Upgrade. 

“They essentially get outsourced product development,” Jonah Crane, partner at financial services advisory firm Klaros Group, told Insights Distilled of this investment strategy. “They’re bringing that more modern technology development by the fintechs in-house, as it were.”  

This model allows incumbents to better serve their entrenched customer base under their own brand, while helping challengers develop their platform-as-a-service model.  

Alternatively, Crane has observed that the relationship between fintechs and banks in the US is often reversed: Incumbents will power challengers behind the scenes, so the users know the fintech’s brand, but the big bank is also gaining new customers.