Seeking Out Fintech Partnerships to Give Your Customers the Best of Both Worlds

Recent years have seen digital disruptor banks and fintech brands dominate the conversation when it comes to what customers want from their financial interactions.

According to the KeyBank Financial Resiliency Survey 85% of American respondents stated they will use digital tools to conduct some or all of their financial interactions following the COVID-19 crisis. However, many younger bankers – Millennials and GenZers – said they would prefer a combination of digital and in-person banking more often than older Americans, who would rather exclusively use digital banking tools.

"More than one quarter (28%) of people under age 35 say they want to create and update a budget with the help of a professional powered by technology,” said KeyCorp in a press statement. "By contrast, just 6% of people 50 and over said the same. Rather, 51% of people aged 50 and over would prefer to create and update a budget on their own using digital banking tools, compared to 44% of people under age 35 who agree.”

Banks would therefore better equip themselves to attract younger generations of customers by partnering with fintech providers and augmenting their physical bank offering with the latest digital tools.

A Change in Priority

If we go back just a year to the beginning of 2022, many banks were reporting their fintech partnerships were underperforming.

According to Forbes, 65% of banks and credit unions entered into at least one fintech partnership over the past three years, and 35% invested in a fintech startup. However, in that same report, of those financial institutions, just 28% said they’ve seen a 5% or better increase in loan volume, and only 14% have realized at least a 5% gain in revenue from new products as a result of partnering.

Nearly a year later, in November of 2022, the US Department of the Treasury issued a report encouraging financial brands to engage in responsible partnerships with fintechs and work to make them more effective than they have been in the past.

"Innovation and competition must work hand in hand in a healthy economy,” said U.S. Secretary of the Treasury, Janet L. Yellen. "While non-bank firms’ entrance into core consumer finance markets has increased competition and innovation, it has not come without additional risks to consumer protection and market integrity.”

Adding to these concerns is Acting Comptroller of the Currency, Michael J. Hsu who said his, "strong sense is that this process, left to its own devices, is likely to accelerate and expand until there is a severe problem, or even a crisis.”

It would seem therefore there are advantages for the entire economy as well as for customers to banks and fintechs working together instead of in competition with one another. How then can banks avoid entering into underperforming partnerships, the likes of which we saw at the beginning of 2022?

Partnership Pitfalls

There are three key considerations which banking brands must strategize for, if they want to create lucrative fintech partnerships which yield incredible results for both themselves, their partners, and their customers.

• Organizational structure – The most effective fintech partnerships have a centralized team which is responsible for identifying, vetting, negotiating, and deploying fintech partnerships backed up by additional advocates throughout the organization.
• Personnel – Over half of banking brands surveyed have no dedicated personnel working on fintech partnerships. According to Forbes, "The institutions in the $1 billion to $10 billion asset range with dedicated personnel average about 2.5 full-time equivalent staff members. How many partnerships can an organization identify, vet, negotiate, and deploy with 2.5 people?”
• Partnership competency – Identifying, vetting, negotiating, and deploying fintech partnerships is not something many financial brands are used to and requires a unique skill set compared to regular banking back-office activities. IT and procurement people are often put onto these tasks, but experts claim this is a mistake compared to recruiting specialists.

Following these three guiding principles will ensure that fintech partnerships perform as expected more often than not, and your banking institution can avoid partnerships which underperform or are actively harmful to your brand – such as through exposure to money laundering activities for example.

Final Thoughts

Meeting the needs of customers with a hybrid digital/physical banking service is leading many bank brands to seek out new and exciting fintech partnerships. However, partnerships of this nature must go through a careful process of identifying, vetting, negotiating, and deploying to avoid underperformance and protect brand safety.

"Banks need to up their partnership game by establishing effective organizational structures, staffing up their efforts, and operationalizing the execution of their partnerships—just like they do with other business processes,” concludes Forbes.

Fintech partnerships are sure to be part of the conversation at Future Branches Boston, being held in June at The Westin Copley Place, Boston, MA.

Download the agenda today for more information and insights.