Banks and fintechs haven’t enjoyed a straight line relationship. Given the vast differences in regulations and requirements, banks have historically resisted fintech-based innovation. Recently, however, banks have warmed up to collaborating with fintechs in the payments space. They now see the valuable role they can and do play in transforming the industry.
As with any relationship, both parties must cooperate and as banks accept the idea of partnering with fintech companies, fintechs in turn are taking a proactive approach to develop an effective partnership strategy. They determine early on which banks to call and gain a better sense of how to break into the market. A successful, sustainable banking and payments partnership represents a key area of business growth for all. Here are five ways to make those partnerships flourish.
1. Identify the common denominator
The vast market of fintech and “regtech” (regulation technology) companies indicates a basic fact: A need exists to pick up where banks have left off. Technology will likely overtake what any single bank can do, whether in consumer or commercial banking. That said, the opportunity for businesses and banks to work together is endless; these symbiotic relationships hinge on understanding when banks need to pass the baton.
More often than not, banks have shied from going very deep within an organization to aid in financial operations and that leaves a gap in processes such as accounts payable, which other businesses could take over and improve. Yet if banks want to grow and act as more than just treasury repositories, it behooves them to partner up to address many common business pain points.
2. Demonstrate maturity
Banks carry a strong set of conservative values. Fintech companies that hope to work with them must understand that banks can’t “play” with the money they manage, as it constitutes a serious violation of a bank’s trust. Banks are fanatical about security and financial compliance, and partnerships with them must uphold the same regulatory reverence. Any fintech or bank must demonstrate that the processes put in place display maturity and respect for regulations.
This amounts to one major reason why blockchain and bitcoin remain problematic. The global regulatory language simply isn’t comprehensive enough. At the same time, adoption hasn’t been broad enough to know and delineate what’s safe. In fact, for every exciting breakthrough in cryptocurrency, you can find another story just a click away about a new risk factor.
3. Find win-win solutions
With their massive footprint in payments and financial services, banks also have access to clientele. But they almost never have a process sensibility for what it takes to run aspects of a business’ operations. That’s where fintech solutions excel.
Banks and fintechs can team up to solve the issues organizations face. Banks can provide lending vehicles and capital as they introduce clients to partner-driven technology solutions. The solution providers in turn can integrate with banks to help businesses bridge the chasm between finance and operations.
4. Befriend the champion bankers
Banks are not software companies—and never will be. Most banks offer some type of consumer-level bill pay functionality but more often than not, this rarely materializes into a robust, fully scalable solution for business clients. They often stop at the ability to upload payment files for wire, automated clearing house (ACH) and check transfers. This is due to excessive infrastructure and the support required, as well as the depth of internal processes needed for accounts payable bill pay. Yet bankers may possess the foresight to maintain even a consultative relationship.
Progressive banks don’t view fintechs as threats. They recognize their core strengths and find ways to maintain customer relationships without trying to create one-off solutions that may or may not solve problems. Software products provide operational benefits while banks provide capital and transactional benefits. Befriending champion bankers marks a critical component to ensure a sustainable partnership.
5. Position for enduring success
A fintech-banking partnership must scale as the fintech grows. Neither party wants to engage in a flaky partnership. That amounts to too much risk and prior legwork for all parties. While many companies look at technical integrations—such as how software connects to banking rails—scaling goes beyond these nuts and bolts of the code. Compliance and infrastructure need to inform long-term thinking.
For example, if we assume blockchain becomes as prevalent as ACH one day, will both parties align as to when and how to address it? Can they help each other through regulatory issues, such as when the U.K. leaves the European Union? Fintechs will expand at a rapid rate; can the banking rails keep up with the volume a high-growth fintech requires? Does the relationship enable room for the global reach the market demands?
These factors will prove essential to long-term partnership success, with what were once thought of as entirely separate entities functioning as a whole. And in this way, innovation, collaboration and transformation will testify to that whole as far transcending the sum of its parts.
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Manish Vrishaketu is the chief operating officer at Tipalti, a global payables automation company.
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