The FinTech honeymoon is over: Now what?

The salad days of seemingly unlimited venture capital and explosive growth in FinTech are over.

Today, two trends underscore the new situation that drives FinTech’s market recalibration. First, new FinTech investments are tapering off as the broader funding market cools, according to a 2016 KPMG report. Second, we’re seeing banks, once flummoxed, finally starting to get the hang of digital innovation.

To survive the down market will require upstarts to take a long, hard look at their business models and make key investments in these three areas: regulatory compliance, bank partnerships and excellent customer experiences.

Commit to compliance: These programs aren’t optional

Failing to invest in compliance represents one of the single biggest mistakes FinTech upstarts make. Many new companies view compliance as an expensive waste of time and resources—or they don’t look at it at all and thus have no opinion. Ironically, this goes against their very nature as market disruptors.

When it comes to competing in a highly regulated market such as financial services, the traditional Silicon Valley model breaks down. In FinTech, compliance is table stakes for those serious about transforming banking’s future.

As we’ve seen time and time again, ignoring compliance leads to a losing strategy. It slows business to a crawl when regulators come calling—and trust me, they will. Further, the more successful your business, the faster regulators appear. Right or wrong, this happens for many reasons. A common reason of late: A company is perceived to operate with unfair or deceptive business practices.

In a down market, higher compliance costs can be deadly. But they are also avoidable. Customer-driven companies always start by documenting customer interactions. Businesses with a focus on compliance must instill a culture of looking out for customers, which in turn creates trust and helps companies build their brand into a lasting asset.

A no-brainer: Banks as partners

By and large, FinTech companies have accepted the reality that banks aren’t going anywhere anytime soon. Lofty proclamations about the demise of traditional banks have quieted, and talk of partnerships has become de rigueur in FinTech boardrooms.

You don’t need a massive sales team or multimillion-dollar marketing budget to partner with banks. But it does take patience and requires listening to what the bank actually wants and needs.

Above all, partnerships depend on trust.

My dad and grandad taught me that your word matters most in business. When communicating with employees, customers, vendors and partners, it’s what you say—and how you say it—that creates the foundation for trust. In turn, that trust creates the foundation for relationships.

Dealing with money and being in direct contact with a partner’s customer base requires the highest level of trust. This makes FinTechs especially reliant on trust and strong listening skills. It’s also why bank partners take extra time to make sure they can trust you before finalizing any arrangement. 

To bring a partnership to market rapidly, FinTech companies need to build trust with the same zeal the build products. It’s about parallel processing and each step of the product development lifecycle can serve as an opportunity to foster goodwill and confidence—so long as you view it that way.

It’s About the Customer

While tech innovations have propelled FinTech thus far, competing on technology alone won’t cut it in a down market. As any old hand will tell you, it’s all about investing in customer relationships. And in turn, this means investing in the customer experience.

Redefining the relationship banks have with their customers marks the greatest opportunity for every innovator in this space.

Starting with the arrival of the ATM in the 1960s, technology has driven a wedge between banks and their customers for decades. As a result, banks no longer sit at the center of every business and consumer’s financial universe. Today, banks tend to look more like cash depositories than the financial advisor hubs they once were. This represents a major opportunity for both FinTech companies and banks. 

Faster payments, hyper-intelligent advising, cheaper loans: These are all important innovations stemming from the recent FinTech boom. But there’s only so much speed, intelligence and savings that can be achieved over a given period of time. Customer happiness, on the other hand, has no ceiling and proven value that dates back generations.

Optimizing for experience, and not just efficiency, is the winning strategy in FinTech. No one should forget that and everyone should take advantage of the technology available today to enhance those relationships. For in the end, the banking business is a relationship business.

René Lacerte is the chief executive and founder of Bill.com, which he launched in 2006. He can be reached on Twitter at @rlacerte.