Take these 7 steps when exploring a fintech partnership

High on the list: A bank should only experiment with a fintech if it has a clear goal and purpose in mind.

Fintech is one of the buzziest trends in financial services right now, and no financial institution wants to be left behind. In fact, fintech partnerships have accelerated over the last several years.

According to a recent study, nearly two-thirds of banks and credit unions entered into at least one fintech partnership over the past three years, and 35% made an investment in a fintech. Of those that have not partnered, close to 40% plan to this year and 18% expect to make an investment in a fintech.

These new and emerging partnerships are being largely driven by market disruption. A PwC global fintech report shows that financial institutions are increasingly likely to lose revenue to innovators, with the vast majority believing this is already occurring.

To counter these risks, partnerships are quickly hatching to innovate nearly every aspect of the bank. But with seemingly boundless opportunities, how do financial institutions know which partnerships are best for their business?

To ensure that their activities align with their business strategy, banks should follow these seven steps:

Start with a clearly defined business strategy: Strategy, not technology, should drive a bank’s decisions. Before considering any fintech partnerships, banks should ensure it has a clearly defined and communicated business strategy that aligns with its objectives. Too often, banks make the mistake of getting on board with a promising technology and then build a strategy around it.

Seek partnerships that support your goals: Banks should avoid blindly jumping into a new opportunity simply because it sounds cool. An institution should only experiment with a fintech if they have a goal and purpose in mind. Banks must consider what it is they are trying to accomplish.

Don’t spread your focus too thinly: Not every new initiative needs to have ties to a fintech partnership.

Only experiment in areas that are important to your goals: Banks should use their limited resources to explore fintechs that can make a significant contribution to their institution. Experimenting with partnerships that do nothing to drive bottom-line results may not be a good use of a bank’s time and effort.

Make sure your business side and tech team work together: Often, a bank will direct IT staff to develop fintech partnerships. While IT has a lot of insight to offer, they don’t have all the information to drive the decision. Business and IT need to work together to find and deploy fintech partnerships that make sense. It shouldn’t be a strictly business or tech initiative.

Have a plan to build user buy-in: The people who ask for, research and implement fintech will naturally be the most excited about it, but that enthusiasm isn’t always contagious. Banks should have a plan to help their customers understand the new technology and then use it.

Plan ahead to ensure third-party vendors can support your bank’s goals: Banks shouldn’t be caught off guard by vendors that thwart brilliant fintech partnership plans by telling them their technology isn’t compatible with the bank’s technology. Instead, banks should look ahead to where they want to be in three to five years before signing vendor agreements and determine if the vendor that serves them well now can also serve them in the not-so-distant future.

As banks ramp up their efforts to innovate, fintech partnerships will continue to increase, but they must be approached strategically. Banks should not let a fintech misstep distract from their goals and objectives.

By following these seven steps, financial institutions can find fintech partnerships that align with their overall business strategy – and remain competitive in a fast-moving industry.

Michael Berman is CEO of Ncontracts.