There is a power play ahead for Singapore banks as they cosy up to fintechs that offer quicker ways to scale and deepen their customer reach.
But the quest for digital dominance in the next few years through partnerships will hinge on whether fintechs will be pinched by funding constraints and how they and the bank manage an era of uneasy data alliances, analysts said.
One aspect of the strategy came clear last year when DBS and UOB linked up with ride-hailing app partners that are evolving into fintechs - a cluster attracting premium valuations.
UOB will become Grab's preferred banking partner. The bank has set up a channel into the GrabPay wallet so UOB customers can top up funds from their account - a move that may make credit-card top-ups less relevant if this option takes off. DBS has linked up with Indonesian firm Gojek, but the focus thus far has been on promises of promo codes.
Mr Badrinath Ramanathan, Singapore-based partner at McKinsey & Co, said that on the face of it, fintech partnerships could be a credible and stronger alternative to building a standalone digital bank, an option traditional banks are simultaneously exploring.
Such partnerships open up payment channels while generating a wealth of data that could lead to lending and other forms of financing later.
But Mr Ramanathan warned that the partnership needs to address sensitive issues such as value sharing, ownership of the customer relationship, data and intellectual property sharing, and customer privacy.
Indeed, the short-term opportunities from data partnerships could bring "unfavourable" relationships once partners become dependent on the data flows, said a Deloitte report.
"Partnerships are proliferating across the financial services ecosystem, but only time will tell if these relationships drive sustained value," it said.
"We observe that data partnerships are in the early stages of being formed, but are not yet at the stage where tensions have major impact.
"By positioning themselves as the critical link across the ecosystem, firms can turn other participants into commoditised service providers.
Tensions arising from this may limit the longevity of emerging alliances."
Banks' other power play may come in the form of blessings from tighter monetary conditions. As the cost of capital starts to rise as interest rates normalise, bargaining power may begin to tip in favour of traditional financial firms over fintechs that may have burnt through cash to secure their market.
Mr Norman Villamin, UBP's chief investment officer, private banking, said: "Where the balance of power shifts is when the tech guys become funding-constrained, creating a similar playing field. At that point, who would generate the better return for the same dollar?"
As shifts in business models and funding collide, incumbents such as banks can snap up fintechs that help to make up a few years of organic development of tech capabilities, analysts said. That would translate essentially to a grab for valuable patents owned by fintech firms.
This would bring much-needed growth in revenue, so banks can make a convincing case of growth through technology, rather than using technology to reduce costs alone.
"There is a limit to how much you can command a premium by cost-cutting," added Mr Villamin.
"Is that a viable way to transition? Yes. But at some point in the future, you'd need to have some top line driver."