Since the dawn of the fintech era, the banking industry has treated these new players primarily as potential disruptors to be fended off, or as tech laboratories to be emulated or acquired. But now, as fintech broadens in scope and matures as an industry of its own, there’s more room for a middle-road option: partnership.
Such partnerships, which can take a wide variety of forms, can create clear benefits for both sides—fintechs stand to gain legitimacy in the market and access to capital to accelerate their growth, while banks typically get their hands on more advanced technology to help them meet customer demands for ever better and more personalized experiences.
A key element in these strengthening ties is the growing trend of bankers crossing over to the fintech side, whether for the adventure or for the potential payout. In doing so, they bring valuable insider perspectives on what banks and credit unions are seeking from fintechs as well as the personal connections needed to establish those partnerships.
Our lead article, from contributing writer Edmund Lawler, explores the crossover effect along with other trends taking shape in the bank-fintech space. Near the top of that list is the ever-present question “Build it or buy it?” when it comes to adopting new technology for customer-facing use or for the back office.
Lawler quotes one ex-banker, now on the fintech side, who boils down the decision to a binary: If you are trying to solve a problem unique to your business, build your own solution, and if your problems are essentially the same as everyone else’s, buy the fix. “Building a solution takes a lot of time,” the ex-banker says. “By the time you release it, you are already two years behind your market.”
For this Executive Report, I interviewed fellow Chicagoan Randy Rivera, a former banker who now heads a not-for-profit that promotes fintech collaboration in the Midwest. Our conversation covered everything from the benefits of expanded partnership and the maturity level of the fintech space to the trend toward aggressive acquisition among some banks.
We also discussed some of the areas where financial institutions and fintechs are having trouble finding a good fit. In Rivera’s view, one of the bigger challenges to innovation comes from the bank regulatory side, which tends to resist anything but the most proven technologies. “(Banks) don’t have regulatory wiggle room to make mistakes, and fintechs can’t experiment … to see if their idea works,” he says.
An article by contributing writer Katie Kuehner-Hebert digs into regulatory concerns about customer privacy, data security and other issues as banks and fintechs increasingly work together and share more information. She spoke with a number of experts about how to best navigate the tricky terrain.
“The more banks allow third parties to access their core processing systems, the more opportunity there is for exposure to a cyber event,” one of those experts told her. “Banks need to be concerned with legal and technological security issues and follow appropriate policies and procedures to protect against breaches or similar cybersecurity events.”
Here are a few additional highlights from this Executive Report:
Norm DeLuca from Bottomline Technologies writes about the accelerated pace of change in consumer behavior caused by the COVID-19 crisis, and how fintechs are taking advantage of those changes. He says financial institutions need to fast-track their digital capabilities—either in-house or in collaboration with outside partners—to maintain that all-important customer relationship.
J. Slygh from Total Expert acknowledges that some fintechs overpromise and under-deliver on the innovation side when partnering with financial institutions. He highlights a series of customer-centered qualities that banks should consider when deciding which fintech firms to team up with.
And Tom Nelson, chief investment officer at Reich & Tang Deposit Networks, shares his perspectives on the deluge of deposits hitting banks and credit unions, largely as a result of pandemic-related federal funding. He also outlines how partnerships with fintechs and others can help these institutions plan for a future in which liquidity may be far less abundant.