Financial institutions once viewed fintechs as a threat to their business, but banks are increasingly recognizing the value of partnering with them. Because they are smaller and nimbler, fintechs can typically innovate much faster than banks can. In a fast-moving marketplace, this dexterity can lend banks a competitive advantage. The key to success lies in identifying the right fintech partner.
What to look for
To lay the groundwork for selecting a fintech, banks should first evaluate their own products and services to identify which have the weakest value proposition and/or which have the greatest growth opportunity. They can then look for appropriate fintech partners to meet those identified gaps.
How can bankers choose the right fintech for partnership? They should begin by evaluating the following characteristics:
- Thought leadership. The fintech should have a vision for where the market is going and how they plan to lead in it.
- Innovation. It is one thing to talk about innovation and another to actually provide it. Look for vendors that have led the market by being the first to do something in their segment.
- Ability to execute/history of delivering. A vision and roadmap are not enough; the fintech must be able to execute on those things. It should have a proven history of delivering on its promises.
- Stability. The fintech should have solid financial backing from reputable investors. These financial backers should have a history of picking winners, a reputation for due diligence, a portfolio that performs well, and the ability to provide the fintech with financial support if something goes awry.
- Agility. The fintech should be quick to develop and nimble enough to respond quickly to changes in the market. Some of the larger, commonly used financial services vendors can be slow to innovate.
- Shared vision with the bank. Some banks are conservative in their strategic approach to business while others are more willing to be early adopters. Your fintech should have a similar philosophy and outlook.
- Compatible culture. When evaluating potential fintech partners, banks should get to know the fintech’s personnel and culture. If the fintech’s staff comprises professionals whom the bank might hire, the fintech is likely a good fit. A firm’s technology might be great, but technology is delivered by people. The bank must be sure that they are people it can work with and trust.
Many of today’s most innovative banks have strong, productive relationships with fintechs. Banks like Wells Fargo and Citi even have in-house incubators for testing fintech solutions. While some fintechs are wary of working with larger, bureaucratic banks, others have come to recognize the valuable assets financial institutions can bring to the relationship, such as an established customer base and financial stability.
As consumer expectations continue to rapidly evolve, banks must be able to meet their demands. By partnering directly with innovative fintechs, they will be better positioned to innovate at the pace today’s market requires.