Acquiring or partnering with a fintech? Planning is everything
Key considerations for financial institutions
INSIGHT ARTICLE |
As financial institutions look to expand their services digitally to remain competitive in the crowded financial services marketplace, many may consider acquiring or partnering with existing fintech businesses to gain these needed cutting-edge technologies. Acquired services like financial apps, digital payment solutions and lending technologies can be integrated into existing financial services and often are seamlessly provided to customers. While smaller, middle market financial institutions may lack the internal resources to develop these technologies on their own, acquisitions or partnerships provide a next-best solution. These enhanced services allow institutions to build relationships with new and existing customers, create operational efficiencies and open up new business opportunities, all in a speedy, proficient, cost-effective way.
However, while there are a variety of advantages in working with third-party technology providers or fintech partners to launch these newer services and operations, failure to properly select and manage vendors, partners or new acquisitions from the start can deliver the opposite effect, creating additional risks and unforeseen exposures for the institution.
Planning is everything when it comes to partnering with or acquiring fintech services. Here are some tips for financial institutions to consider:
Understand the needs of your customers or members
The first step before considering a fintech partner or acquisition is understanding what your consumers truly want in the way of financial services, and how do they want them delivered. Do they require savings vehicles, mobile payment resources, wealth planning and more? Do they prefer online banking, in-person tellers, financial planning apps? Institutions can pinpoint these needs and buying behaviors via surveys, customer focus groups, call centers, or even discussions and information-gathering with employees. The important consideration here is to get the data first before selecting what you assume might work. Make informed decisions on what’s lacking or needs to be fortified in the way of your services through data and research, and then begin the process of identifying how to get those services implemented.
Acquire or partner: managing the process
Once your needed services, operations and resources are identified, it’s time to acquire or partner with a fintech or third-party vendor. There are likely a variety of choices. Your options can be filtered down by completing a formal vendor selection process led by an appointed project manager. This approach can help you weigh benefits, risks and complete rigorous due diligence to ensure a successful transaction and solution launch.
Design the right solution
Once you’ve landed your fintech partner or acquired the appropriate service, your next steps include working with your new capability to design the right solution for your institution. This may mean working with processes and systems already in place that aren’t being fully utilized, or introducing a solution that’s completely new to the institution. A multifunctional group from your institution should be a part of this design process to provide a variety of insights and intelligence to the service development.
Weigh the risks
Assessing your risks from cybersecurity and data privacy to regulatory compliance must be an ongoing effort in your acquiring or partnering management. This ongoing assessment is something that should be part of your vendor selection process, but also as you work through your FFIEC regulations and other requirements. Additional reviews may include performing background checks on the organization, confirming mutual security parameters are in place, and establishing where data lives and whether the organization or its servers are U.S.- or foreign-based. Other third-party risks to be assessed include the financial viability of the fintech organization and its leaders, and their business continuity and disaster recovery plans. All potential exposures are important to assess as this new fintech relationship could open up avenues of outside threats, breaches and reputation damage to your financial institution.
Define responsibility and allocate resources
A fintech partnership requires management and oversight to be effective. Make sure you have considered ownership at the executive level and internal staffing requirements needed to achieve the full value of your investment with a fintech. Evaluate resource impacts to marketing, staff training, operations, performance and financial reporting functions. Failure to identify and devote the resources required to integrate the selected fintech partner solution into your environment will negatively affect your success. Based on the automation levels of the solution implemented, these resources may need to dedicate time on an ongoing basis for oversight and operations of the solution as well.
Stick to the plan
One of the biggest issues associated with launching a new service or system operation is the failure to execute fully on a project plan. While in a hurry to go to market to launch a service, plan steps may be glossed over, and unfortunately critical items may fall off. To combat this, make sure your institution has a robust project plan and there’s a very clear definition around who is responsible for what, and that integration needs are fully spelled out. A vendor management program can help with this along with some sound change management strategic planning.