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Closing Bank’s Innovation Gap with Fintech Partnerships

Scott Goldthwaite

Let’s face it: Banks aren’t naturally set up to innovate. To come up with the next great idea, companies have to be prepared to move fast and break things. Banks are intentionally designed to prevent this kind of behavior. They are sturdy and layered in security and approvals, and for good reason—we need the backbone of our financial system to be stable and reliable.

Still, banks have to respond to changing demands from their customers, from consumers to multinational businesses. Due to Covid-19, consumers and companies alike now expect to be able to conduct more banking and financial tasks electronically. And banks need to be able to respond to these demands quickly and efficiently.

A mutually beneficial partnership

This expansion of expected services works to banks’ advantage. It presents openings to capitalize on the close relationships they already have with their customers. For example, bank clients may already be fully integrated with the bank’s systems. What’s more, they often look to banks as trusted advisors who have the expertise and resources to help them navigate a variety of financial challenges and opportunities.

But building out modern billing and presentment solutions is a time- and resource-intensive task that most banks can’t afford to take on—especially because many competitors from the fintech industry have begun offering low- or no-cost payment services to gain market share. Instead of attempting to construct their own solutions, banks should pursue partnerships with fintechs.

Bank and fintech partnerships are not new—you can read about one or two a week in the trade press. But the reality of bank-fintech partnerships tends to fall short of what the headlines might lead you to believe. Too often, competitive posturing and cultural differences get in the way of a mutually beneficial partnership. That’s too bad because these ventures offer immense potential benefits to both parties and their customers.

Take Zelle, for instance. By partnering with financial institutions, the payment app makes it fast and easy for users to send and receive money securely. For its bank partners, Zelle provides a simple and identifiable framework to enable person-to-person payments across multiple institutions. In turn, banks provide Zelle with users. It’s a win for every party involved.

And it’s not the only one. Many banks partner collaborate with fintechs on high-demand, digital services like integrated receivables. This gives banks the ability to offer the latest online billing and payment capabilities without making the substantial investment that would be required. It also deepens client relationships and creates profitable new revenue streams.

Finding the right fintech

Banks looking to partner with a fintech should first carefully consider what you are trying to solve, achieve, or realize. Where do you most need to add to your services to address unmet demand from existing customers?  Where are you most at risk from competition?  Similarly, what services would help you gain new market share? And which fintech’s are best positioned to deliver those services with the least amount of channel conflict?

Many fintechs offer exciting new functionality and features. But keep your priorities straight: Stick to your scope, and don’t be distracted by shiny objects you don’t need.

After you’ve defined the kind of partnership you’re looking for, start interviewing candidates. Meet with a few potential partners and evaluate their culture, growth strategy, and competitive situation — making sure to note potential areas of overlap or conflict with your bank. For the partnership to work, it needs to be mutually beneficial, so be prepared to spell out what your organization will bring to the table. Remember that your company has a built-in customer base and consumer trust—qualities many fintechs sorely need.

As you begin to narrow your list, think through details like time to market and ease of implementation. Whenever possible, try to negotiate a pilot run in a test market of your choosing. Any fintech that’s serious about a mutually beneficial relationship should agree to this crucial step.

To fully reap the benefits of partnering with a fintech, the company you choose has to be willing to work within your core systems including accounting and ERP. This will be key if you’re going to create a seamless user experience. At the same time, you want a partner that provides the simplicity and flexibility of a cloud-based platform with available APIs and IFrames. For example, any integrated receivables solution needs to be scalable and customizable for clients based on geography, size, or industry. Vertical industries that may require unique and complex payment options include insurance, utilities, healthcare, property management, education, and government/municipalities.

With the right fintech supporting you, meeting customer demands will be easier than ever—presenting new opportunities to build on old relationships and develop new ones.

About the Author

Scott Goldthwaite is President of Aliaswire, a fintech company supporting financial institutions and merchants services providers with online bill pay and small business credit solutions.

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