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Partnering For Innovation: Selecting Your Fintech And Maintaining The Partnership

Forbes Finance Council
POST WRITTEN BY
Kathleen Craig

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What in recent years has been used as a term to define alternative lenders, and direct-to-consumer disrupters of banking, “fintech” has circled around again to include any technology company creating innovative solutions for financial institutions. And, while the goal of fintech companies over the past 10 years was to disrupt the financial industry by offering an alternative to traditional banking due to perceived consumer distrust that emerged from the 2008 financial crisis, that goal has shifted again. Fintech companies and financial institutions have realized that by working together, rather than competing, they can both be better positioned for success.

The challenge? Finding the right fintech partner can be overwhelming. The industry is flooded with thousands of fintechs, with more popping up every year. It can be difficult to know which company’s offerings are right for your financial institution and your customers. By understanding fintechs and their industry, you can be more prepared in your approach to finding the right partner.

But before seeking a fintech partnership, it is critical to have a good pulse on your institution’s strengths and competitive advantage. For instance, are you a retail consumer-focused bank? Are mortgages a key driver? Are you more focused on small businesses or commercial lending? Knowing your strategic priorities will help you sift through the seemingly endless options in an ever-growing landscape.

Asking The Right Questions

When considering a partnership with a fintech, asking your internal team and your potential fintech partners the right questions can ensure your goals align. With specific, targeted and strategic questions, you can determine the types of solutions your bank should consider — narrowing the pool of options. A few key factors to consider are:

• What need does your institution meet?

• Who is the target market?

• What is the competitive landscape like?

• What does the product’s future functionality road map look like?

• Does your institution want the best of suite or the best of breed? The best of suite can provide better integration but lack the best-in-class title, while the best of breed can provide best-in-class functionality but may lack integrations.

Forming a partnership is meant to help, so finding the right partner is imperative. When crafting questions for fintechs, engage stakeholders to make sure everyone’s priorities are represented and addressed throughout the process. For instance, involve your IT department to understand the complexities of the integration. Find out from front-line staff what would make their lives easier when talking to customers about products. This will help your financial institution stay true to its identity throughout the partnership. Once you understand all stakeholders’ specific goals, you can then begin asking questions and getting to know potential partners.

Finding Your Fintech Partner

When looking for a partner, banks and credit unions can leverage useful tools to help introduce them to fintechs. For example, Bank Director’s FinXTech Connect houses an online directory with reviews from other financial institutions about fintechs and vendors. State associations can also share information about possible partners that may add value to your institution.

Additionally, working with an accelerator can be helpful in finding the best fintech partner to work with your institution. There are a number of accelerators that provide information about fintechs that have been through their program. Many financial service providers offer their own accelerators, as well.

To truly partner with fintechs, banks and credit unions must overcome several challenges and concerns. For instance, many community institutions worry that regulators will restrain fintech partnerships since fintechs are not required to adhere to the same regulatory guidelines. However, if a financial institution demonstrates that collaboration is beneficial to all players, regulators will likely be more receptive to the idea, in my experience.

Maintaining Compliance While Partnering With Fintechs

Compliance is a top of mind issue and an expensive one at that. Each year, the cost to maintain regulatory compliance increases. In fact, a survey by Duff & Phelps estimated these costs to more than double from 2017-22.

However, fintechs are not currently held to all the same regulatory guidelines as financial institutions. This may very well change in the future, but for now, financial institutions will be held liable for any regulatory violations. Effectively, it is crucial that banks and credit unions collaborate with fintechs that are adhering and proactively keeping pace with current guidelines to ensure products are in compliance and updates are made as regulations change.

There are numerous advantages to partnerships for both fintechs and community financial institutions. Partnering offers a more cost-efficient solution to creating products and services for banks and credit unions and allows these tools to go to market more quickly than if they had been created in-house. Likewise, fintechs are able to tap into the vast compliance knowledge of financial institutions while continuing to produce innovative tools to alleviate consumers’ pain points. By collaborating, rather than competing, fintechs and community financial institutions can bring technological advancements to the industry and support their communities’ financial well-being.

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