7 key actions for financial services organizations partnering with fintech companies

As financial services organizations further embrace digital capabilities to remain competitive in the crowded financial services marketplace and the era of super apps, many are considering acquiring or partnering with existing fintech businesses to gain access to cutting-edge technologies. Through such partnerships, organizations can integrate additional features into their digital platforms or completely redesign them to offer a more seamless experience to customers—and broaden their customer base.

While banks and other lenders and financial services organizations may lack the internal resources or funding to develop these technologies on their own, acquisitions or partnerships provide a cost-effective, next-best solution. There are many advantages to working with fintech partners to launch these newer services and operations, but failing to properly select and manage partners or new acquisitions can deliver the opposite effect, creating additional risks, unforeseen exposures, and unnecessary costs.

Such partnerships may be at the front of leadership teams’ minds, given the significant growth in the fintech space over the last decade; there was $100 billion invested in fintech globally in 2020, compared to $12.6 billion in 2010, according to PitchBook. According to Plaid’s annual report, consumer adoption is up—with 88% of U.S. consumers using fintech in 2021, up from 58% in 2020—and conventional banks’ market share continues to drop.

In light of these market shifts, planning is everything when partnering with or acquiring a fintech company. Here are seven key actions and areas of consideration for organizations looking to embark on such partnerships:

1.    Understand your customers on a deeper level: The first step before considering a fintech partner or acquisition is to understand what your consumers truly want in financial services and how they want those services delivered. Do they require savings vehicles, mobile payment resources, wealth planning, and insurance products? Do they prefer to access services online, in-person, or specifically on their mobile device? Companies can pinpoint these needs via surveys, customer focus groups, call centers, or even discussions and information-gathering with employees.

While it may seem straightforward to understand existing customers, organizations should explore the needs of individuals and entities outside their existing customer bases. Organizations should gather this data first, rather than assuming what customers want. Knowing customers’ needs, lifestyle preferences and behaviors can help banks and other institutions pinpoint the right technology and delivery channel for their situation.

Developing a multichannel approach to meet the needs of various consumer groups can be daunting. At first glance, a balanced approach may appear to be a good compromise, but partially meeting the needs of the majority of customers also runs the risk of brand erosion, especially in this era of micro-segmentation, when switching is easy. There is always a competitor with just the right solution for one of your existing customer groups.

2.    Understand leading-edge technological advancements: While partnering with a fintech company can allow a traditional financial services organization access to new cutting-edge technologies,  the leaders still need to understand these technologies and the solutions. This might involve helping teams get more fluent in topics such as artificial intelligence (which can improve credit decisioning, underwriting processes, and fraud detection), automation (which can speed up service delivery responses and customer onboarding), data analysis, and state-of-the-art customer relationship management tools and more.

3.    Be prepared for culture shock: Fintech companies, particularly those in startup mode, will be used to operating at a different pace and with a different style than a typical financial services organization. Fintech companies may behave more entrepreneurially, prizing innovation and exploration more than the exploitation of business value from existing processes and products. They expect to try many experiments before arriving at a winning idea. They also expect to fail often and fast, something that a traditional financial services organization may struggle to comprehend, let alone adapt to or accept. This entrepreneurial mindset has implications for how projects are organized, managed, and measured as well as how they are staffed and led.

4.    Take a 360-degree view of risk: Fintech companies may not have been subject to the same strict compliance that other financial services organizations face, but as soon as they enter a partnership with one, fintech companies must shoulder the same standards, regulations, and controls. Further, any technology-led, third-party partnership comes with the potential for additional risks in areas such as cybersecurity, data privacy, anti-money laundering, and myriad other regulatory compliance risks. Organizations need to have a solid understanding of the viability and soundness of fintech companies they consider partnering with, as well as the strength and agility of the leadership team. They should also ensure the new relationship has adequate business continuity and disaster recovery plans.

From vendor selections and background checks to mutual security parameters and decisions around where servers will be located, all potential exposures are important to assess as a new fintech relationship could open new avenues for outside threats, information breaches, and reputation damage to the organization.

5.    Don’t underestimate the management lift needed: Acquiring or partnering with a fintech or third-party vendor involves significant management work to meet customer needs, keep implementation costs in line, and merge technologies to ensure compatibility between the two organizations. If the two entities use disparate programs and applications for human resources management, communication among teams, or customer platforms, for instance, they need to work together to determine which routes make the most sense moving forward. It can take time for employees to adapt to such changes, and management should not overlook that.

More broadly, leadership teams need to have a clear plan to address and facilitate cultural alignment between the more traditional organization and the fintech company. Employees at each company will likely have different approaches to innovation, which is one of the major benefits of teaming up with a fintech company; your organization can rapidly gain access to cutting-edge technologies and the overall agility of a startup. But management needs to ensure that this union doesn’t inadvertently create heartburn among employees on both sides. Enterprisewide change management will be crucial across both organizations before, during, and after the partnership goes into effect.

6.    Build ownership through clear accountability and responsibility: A fintech partnership requires management and oversight to be effective. Financial services organizations should consider the ownership and internal staffing requirements needed to achieve the full value of their investment with a fintech organization. This includes evaluating the resourcing effects on marketing, staff training, operations, performance, and financial reporting functions.

Don’t underestimate the time and effort needed to develop and deploy these plans. An organization’s failure to identify and devote the resources required to integrate the selected fintech partner solution into its environment will negatively affect its success. Based on the automation levels of the solution implemented, these resources may need to dedicate time on an ongoing basis for the oversight and operations of the solution as well.

7.    Stick to a plan: While in a hurry to go to market to launch a service, leadership teams may gloss over the whole steps of the plan, and unfortunately, critical items may fall off. To combat this, financial services organizations should have a robust project plan that aligns with the overall innovation strategy and very clear definitions around who is responsible for what. A vendor management program can help with this, along with strategic change management planning.

Balancing the demands of innovation with a thorough and thoughtful approach that considers customer behaviors, risks, resources and plans for new solutions will make financial services organizations’ partnerships with fintech companies as smooth as possible. Institutions would do well to incorporate these seven key areas as early as they can throughout the process of potentially teaming up with a third party to ensure the maximum return on investment when it comes to creating a more seamless digital experience.