Let’s start with a definition. What is a FinTech? Most people think about a technology based company that is providing financial services enabled with mobile or digital technology when they think about a FinTech. In banking, there have been traditional banking system vendors that met this definition long before the term was coined. For this discussion, we will include emerging disruptors as criteria when we consider FinTechs currently in the market.
When an organization considers opportunities to work with a FinTech there are some basic steps to consider. Selecting a FinTech requires the same due diligence processes that you should consider with any third party. The FinTech should be financially stable, have verified controls for software development and operations, adequate insurance, and documented service levels. While these are common steps used for any vendor selection there are attributes of a FinTech that require special attention.
The end goal for most FinTechs is to have enough success to attract a buyer for their company. Knowing this changes how you must approach the relationship. Consider what would happen if a direct competitor acquired the system that you have implemented and suddenly has access to your customer information, pricing and product information. How would it impact you if a large vendor takes over the FinTech and begins to adjust pricing or forces integration to their own systems. All of these scenarios should be addressed in the contracting process to allow your organization to terminate the relationship with no penalty and provide financial considerations if you are forced to implement a different solution under these kind of circumstances.
After considering how the contractual relationship between your institution and a Fintech partner should look, another pitfall we see is the lack of a comprehensive plan to socialize these FinTech solutions in your organization. One of the benefits of a Fintech is that you can leverage the FinTech’s infrastructure to support the solution so you may not need a large internal project to launch the technology. The danger in this is that other aspects of the product launch are not addressed. There still needs to be a plan to educate and train your staff on the solution. Your customer facing resources should understand and promote the service to your customers. Marketing campaigns need to not only promote the solution externally but internal promotion is important to drive success and staff buy-in.
Success criteria and monitoring requirements need to be established up front. A FinTech’s focus is usually on the end-customer experience and the solutions can sometimes lack the reporting and analysis tools you need to measure success. Make sure you address these requirements as you consider a FinTech partnership. Determine how and where you will be able to obtain data on the product and how to integrate it into your management reporting processes.
Assign ownership and responsibility in your organization at the appropriate level. Some organizations have adopted chief digital officer positions outside of information technology to bring focus from a customer experience and digital channel perspective to these technology enabled solutions. Other companies align Fintech relationships to business line owners to bring focus to the underlying business function. Either model can be effective as there is assigned responsibility for managing the relationship and reporting on the solution to executive management.
The types of Fintechs we see being engaged with most heavily by community banks have been focused in either the payments or origination topics. The ability to pay whoever I want, whenever I want, however I want has become the norm. Fintechs striving to make that process easier have found no shortage of institutions willing to work with them. The topic of origination should come as no surprise—as that’s how we gather our funds. However, not just any origination platform has had success. The largest amount of partnerships have been between banks and Fintechs working to build a platform customized to making a smoother and more convenient origination experience for specific types of specialized loans (such as niche small business loans or various types of construction loans). We have seen more success with those partnerships than with Fintechs working to create a broader platform that does well in many aspects, but doesn’t have a particular focus area. For reasons alluded to above, a more narrowed focus and scope can mean your institution and the Fintech’s end goals are more closely aligned as you are all working to serve a specific group of customers.
FinTech relationships offer a huge opportunity to bring innovation to consumers. If your organization does the appropriate due diligence, supports the rollout and monitors the relationship effectively you can have a successful partnership. FinTech startups continue to explode and there is no slowdown in sight for venture capital investments in the FinTech space. Go into these relationships with an eye towards some of the unique challenges and opportunities with FinTechs and you can help your organization improve your customer experience and differentiate yourself from competitors.
