Articles & E-Books


Developing a FinTech Partnership

Aug 27, 2018

In these days of broad and deep digital disruption in the financial services world, a frequently heard question in banking circles is, “Should we or shouldn’t we be looking to develop relationships with FinTech firms?”


While the response from industry experts to this question invariably ends up being in the affirmative, this conclusion is not usually easy to arrive at. A typical journey might have started with thoughts such as, “We are doing fine with our current methods and technologies; why should we worry about any FinTech companies?” through “Oh! The digital disruptions unleashed by large financial institutions are posing very stiff competition; how can we compete?” and, after much dialog and head scratching, finally arrived at “Hmm ... We need to develop FinTech relationships to leverage the latest digital disruptions for the benefit of consumers and our employees and to ensure our sustainability.”


Progressive financial institutions don’t see FinTech companies as threats. They recognize where their own strengths lie and find ways to maintain consumer relationships without creating one-off tactical solutions. They look for solutions that address their problems in a strategic fashion. Software products from FinTech companies provide operational benefits, while institutions provide capital and transactional benefits. For decades, technology has been supporting the operations of financial institutions. It is the evolution of technology from an operational focus to an experiential focus through digital disruptions that financial institutions need to adapt to at an accelerated pace to stay abreast of the competition.


What questions come to mind when pondering the FinTech journey?


With the basic question of “should we or should we not be developing relationships in the FinTech world?” answered, the next set of questions on the minds of bankersirrespective of their size, shape, client base, geography, and servicesturn into action items along the lines of:

  • What are the problems we are trying to solve?
  • How do we know the right types of FinTech capabilities to look for?
  • How do we determine the right FinTech players to connect with?
  • Where do we start?
  • How do we go about designing the relationship framework?
  • How do we establish, develop, and nurture a FinTech relationship?


The very first task at hand when considering FinTech relationships is to get an understanding of the problems at hand that need to be solved. From the days when financial technology was primarily a means to execute the back-office processes unique to the industry, we have arrived at a point where technology pervades every single touch point in the value chain that connects financial institutions with consumers. Consumers have come to expect their financial institutions to be available always, literally at their fingertips, to conduct their business, wherever they may be, not just physically in the institution. Obviously, FinTech plays a key role in enabling this omnipresent, omnichannel experience, not only for consumers, but also for employees and executives of financial institutions. So, in essence, every stakeholder group that financial institutions hold themselves accountable to is facing the effects of digital disruption. This is clearly a call for action from decision makers.


What are the typical issues faced when exploring FinTech relationships?


Integrating a third-party technology with core banking technologies is usually quite expensive and complex. With digitally disruptive FinTech solutions that use more modern technologies, these challenges may be further exacerbated. And even when financial institutions are told by major core banking technology players that they are on the verge of bringing the latest FinTech capability to the table, those players typically do not move fast enough to overcome imminent competitive threats in the marketplace. This leaves financial institutions in a quandary, resulting in lost time to market and an eroding consumer base.


Another challenge that may be at hand is that FFIEC guidelines have certain criteria for assessing the fiscal viability of FinTech companies, and start-up FinTech companies might not have a long enough track record to meet these criteria. In such scenarios, establishing a relationship might prove to be a bigger challenge than an institution is willing to take on.


Some points to ponder


A good way financial institutions can start the exploration is by carefully analyzing and listing their own strengths. Some examples of such strengths are:

  • A broad consumer base developed over the years.
  • A broad product set acquired over the years, supported by core banking solution providers and additional technologies.
  • Low cost of capital.
  • National Bank Act protections.
  • Regulatory compliance and the ability/infrastructure to interact with regulators.


    Similarly, when assessing FinTech companies to consider partnering with, it would be important to identify their strengths. Some examples of points on which to assess a FinTech company are:

  • How good are they at coming up with new ideas?
  • Are they agile in their implementation and time to market?
  • Do they offer cutting edge analytics?
  • Can they help with online consumer acquisition?
  • How good is their offering/supporting omnichannel experience to consumers and employees alike?


In addition, check out their ability to offer greater flexibility and consumer choice to tailor solutions targeted at specific groups. The more flexibility they offer in their service approaches, the better fit they may be. Truly progressive FinTech companies may be able to help institutions design and deploy new business models and products that could potentially make them more competitive. A differentiator that FinTech companies could bring to the table is the ability for financial institutions to serve under-served consumer segments, offering real innovation in the form of differentiated products. However, the most important factor in assessing a FinTech provider is its ability to provide the assurance of security.


Where should financial institutions look for potential FinTech partners?


When digital disruption is on everybody’s mind, it is easy to get into the stream by participating in forums such as FinTech consortiums, trade associations, regulatory sandboxes, banking associations, and other similar professional groups. A great source of support and guidance could come from advisory firms such as Wipfli. The most important thing to do is to get involved.


How to start on the path of a FinTech relationship?


An important first step for financial institutions is to think of a FinTech engagement as a true partnership, instead of the usual client-vendor relationship. The two organizations should sit down to collaboratively identify the objectives and goals of each organization and ways the envisioned partnership can help advance these mutual goals. Both organizations should establish boundaries around what they are willing to do to achieve their objectives, what resources will be made available to deal with challenges, and what will trigger the escalation of an issue to the respective executives’ attention. Ultimately, the purpose of the partnership must be clearly tied to the broader strategy of each organization, and at the outset, the partners should establish a process to ensure that purpose and strategy will remain aligned even if they evolve.


A couple of additional important aspects to consider are cultural alignment, willingness to share information in a timely manner, looking out for each other’s interests, etc. Ultimately, it is no secret that competitive advantage is gained through thoughtful partnerships.