Record number of new partnerships by Dutch banks in 2022

After first engagement, comes further development

The PwC research focuses on developments in the Dutch banking ecosystem, examining the strategic goals, partnership structures and third parties, and the various trends that can be identified when looking at the data. The research provides insights into the current priorities of Dutch banks.

Taking a peek at the first half of 2023, it is evident that the number of new partnerships is lower than in the record year of 2022. "This indicates that banks are entering a new phase where the growth in the number of new partnerships is slowing down," says Pieter Verheijen, customer transformation expert in the financial sector at PwC. "Over the past two years, there has been tremendous growth in establishing new partnerships focused on ESG transformation within the banking sector. In 2023, it is crucial for Dutch banks to build on and further develop these partnerships to achieve the intended value creation. I am curious to see if banks can reach a new level of maturity with these ESG partnerships, where customer behavior is positively influenced by new value propositions and execution challenges are overcome."

Digitalisation remains important, but ESG keeps fuelling growth

While digitalization was the main driver for partnerships in the banking sector from 2016 to 2020, ESG themes (environmental, social, governance) took the lead in 2021 and 2022. This does not mean that banks have put digitalisation entirely out of the picture. Verheijen explains, "Digitalisation will remain an important theme in the coming years, partly due to emerging technologies such as Artificial Intelligence and the opportunities they bring for banks in terms of product innovation, service innovation, and efficiency."

The increasing occurrence of partnerships in the field of ESG is due to several factors. "New regulations, such as CSRD, force banks to take action in addressing environmental and social challenges. Furthermore, customers and employees are increasingly demanding that banks operate sustainably and make a positive contribution to society. Considering ESG issues are often complex and cross-industrial, it is difficult for a single organization to tackle them alone. This explains the increasing popularity of partnerships in the field of ESG."

Minority equity alliances gain momentum in ESG partnerships

An interesting trend in the 2022 findings, is the significant increase in the number of ESG partnerships structured through a "minority equity alliance" (MEA). "This trend shows that banks see a minority stake as a suitable way to engage with innovative ESG companies and startups," explains Verheijen. "This gives the banks clearer insight and direct influence in their partner company's activities, with a minority stake being more cost-efficient and thus less risky than a full acquisition. At the same time, it ensures that the bank directly benefits financially from the potential growth of these companies."

This trend from 2022 continues into 2023. In the period from January to June of this year, half of the partnerships are ESG-related, and 35 percent are structured through a MEA. It is also noteworthy that in the first half of 2023, as part of the digitization process, banks are placing more focus on partnerships related to risk & compliance (20 percent of partnerships). Furthermore, embedded finance (15 percent) plays an increasingly significant role in the further development of the Dutch banking ecosystem.

Opportunities for Dutch Banks within embedded finance

The market potential for embedded finance is growing rapidly. Embedded finance refers to the integration of financial services into non-financial products and services. This includes everything from digital wallets for mobile payments to loans, insurance, investments, and a range of business services. The share of embedded finance partnerships in relation to the total has increased from eleven percent in 2021 to seventeen percent in 2022. An indicative example in 2022 is the partnership between Tikkie (ABN AMRO) and Butlaroo, who jointly created a QR ordering platform that allows restaurant guests to pay their bill without the need for staff intervention.

The expectation is that the global embedded finance market will grow from $54 billion in 2022 to $284 billion in 2032. This provides an excellent opportunity for big-tech platforms to leverage their reach and financial capabilities to grow within the embedded finance market. Various players are working on digital identities and wallets for their customers. These wallets can also be used for payments, which means that big-tech platforms are encroaching on the territory of banks. The most ambitious platforms, including some fintechs, are even pursuing banking licenses and have been granted them in some cases. Therefore, it is important for banks not to fall behind in embedded finance, according to Verheijen. "To fully exploit the opportunities that embedded finance offers, it is essential for banks to restructure their business models in certain areas. By taking timely action, banks reduce the risk of their traditional activities being partially replaced by fintechs or other parties"

'Payments' and 'investment & asset management' stand out as the largest product categories

In the partnerships that do not fall under ESG, 'payments' and 'investment & asset management' were the categories with the most new partnerships in 2022. Together, they are responsible for almost 60 percent of the partnerships within 'non-ESG'.

The expectation is that entering into payments-related partnerships will remain popular, as payments are considered an anchor product within the customer relationship, where there high volumes of daily customer interaction and plenty of innovative solutions are expected in this area. It is forecasted that the number of cashless transactions in Europe will double from 229 billion euros in 2020 to 522 billion euros in 2030. Within investment & asset management, growth is also expected to continue in the coming years. Ninety percent of respondents in our research expect that new technologies such as big data, AI, and blockchain will continue to disrupt the current way of working within the 'investment & asset management' sector.