Partnerships between fintechs and financial institutions can be mutually beneficial in a number of ways. In addition to better addressing customer needs and positioning an institution as a provider of value, partnerships help to drive innovation and enhance
financial institutions’ ability to generate revenue.
Many financial institutions seek a fintech partnership to stay competitive. A fintech solution can extend a bank or credit union’s market reach, connectivity to customers, and create new revenue opportunities. Many FIs seek help from qualified partners to
improve their mobile banking and payment channels, personal digital assistants, saving and investment tools, fraud mitigation, payment processing, artificial intelligence capabilities, and rewards/loyalty programs.
Financial technology firms, meanwhile, can also gain from collaborations by taking advantage of increased customer reach, brand awareness, and credibility, to strengthen their offerings.
Selling Innovation and Trust
“While ‘run fast and break things’ may be a popular mantra in the technology space, it is ill-suited to an arena that depends on trust and confidence,” said the Federal Reserve’s Lael Brainard in a
conference on financial innovation. She added, “New entrants need to understand that the financial arena is a carefully regulated space with a compelling rationale underlying the various rules at play, even if these are likely to evolve over time. There
is more at stake in the realm of financial services than in some other areas of technological innovation.”
Not all fintechs have what it takes to work with traditional regulated financial institutions, which requires fintechs to meet some very strict standards. After successfully partnering with some of the world’s largest financial institutions and credit card
issuers we can share what we’ve learned along the way, including the eight critical elements of partnerships that banks and credit unions expect from their tech partnerships:
Deliver an enterprise-grade platform, not just be a “fast moving startup shop” that ships a product when it's 80% done. There is NO “run fast and break things” philosophy when it comes to working with regulated financial institutions.
The platform must be ready to handle a massive, immediate influx of information and transactions when it switches on a new banking partner.
It must be bulletproof: whatever software ships must already have received extensive testing and demonstrated itself as unbreakable. As mission critical software it must meet the tough banking standards related to security, data volume, consumer data protection,
Do not offer a competing direct-to-consumer product that the banking institution might perceive as a threat to its own core business.
Ensure protection of consumer’s personally identifiable information (PII). Data security is of extreme importance to financial institutions and regulators. Establish yourself as PII custodians as well by complying with standards established for protecting
consumer or transactional data, such as securing
SOC-2 (System & Organization Controls, relevant to service organizations around security, availability, processing integrity, confidentiality or privacy) compliance and adhering to
PCI-DSS (Payment Card Industry Data Security Standards).
Prepare for a lengthy and arduous vendor vetting process and ready resources about information security practices and documentation. Research and test potential risks and get aligned on the company mitigation procedures for potential vulnerabilities and
Demonstrate your integration capabilities. Banks will not simply accept a fintech that demands they fit into the fintech’s process. You have to grasp the banks’ established processes, anticipate their needs and then put together collateral and supporting
documentation in line with that.
Establish direct and committed lines of communication with financial institutions and other fintechs involved in the partnership.
FIs Still Need to Close Innovation Gap
Nearly every financial institution understands they need to change more quickly to adapt to emerging technological innovation. Trailblazing fintech and digital challengers are rapidly advancing consumer-friendly models. This is compelling traditional organizations
to reconsider their business and tech strategies to become a part of the new banking environment that incorporates fintech but does not threaten structural integrity, interoperability, compliance and security of their system.
Despite regulators’ increased attention, banks and credit unions need fintech partnerships to accelerate innovation and growth. A Q2 Holdings, Inc.
report on banking innovation and digital evolution revealed more than 60% of financial institutions see fintech partnerships as key to their growth strategy.
For fintechs to partner with financial institutions they need to demonstrate they are ready for banking primetime. That means all the scrutiny and expectations that go into providing integral, reliable and secure banking products or services that seamlessly
integrate into a bank’s core systems.
Fintechs desiring an access card into the banking ecosphere, must follow these essential elements to help pave the way to legitimately receive consideration as a viable choice for large financial institutions.