Eight Essential Partnership Strategies for Financial Institutions for Fintechs

Partnerships between fintechs and financial institutions can be mutually beneficial in a number of ways. In addition to better meeting customer needs and positioning an institution as a value provider, partnerships help drive innovation and improve financial institutions’ ability to generate revenue.

Many financial institutions are seeking fintech partnerships to stay competitive. A fintech solution can expand a bank’s or credit union’s market reach, connect with customers and create new revenue opportunities. Many FIs are seeking help from qualified partners to enhance their mobile banking and payment channels, personal digital assistants, savings and investment tools, fraud prevention, payment processing, artificial intelligence capabilities, and rewards/loyalty programs.

Financial technology firms, meanwhile, can also benefit from collaboration by taking advantage of increased customer reach, brand awareness and credibility, to strengthen their offerings.

Selling innovation and trust

“While ‘run fast and break things’ may be a popular mantra in the tech space, it is ill-suited to an arena that relies on trust and confidence,” the Federal Reserve’s Lael Brainard said at a conference on financial innovation. She added, ” New players must understand that the financial arena is a carefully regulated space with a convincing rationale underlying the various rules at play, although these are likely to evolve over time. There is more at stake in the realm of financial services than in any other area of ​​technological innovation.”

Not all fintechs have what it takes to work with traditional regulated financial institutions, which requires fintechs to meet some very strict standards. After successfully working with some of the world’s largest financial institutions and credit card issuers, we can share what we’ve learned along the way, including the eight critical elements of partnership that banks and credit unions expect from their technology partnerships:

1. Deliver an enterprise quality platform, don’t just be a “fast moving startup shop” that ships a product when it’s 80% done. There is NO “run fast and break things” philosophy when it comes to working with regulated financial institutions.

2. The platform must be ready to handle a massive, immediate influx of information and transactions when it turns on a new banking partner.

3. It must be bulletproof: whatever software ship must have already undergone extensive testing and proven unbreakable. As business-critical software, it must meet the tough banking standards related to security, data volume, consumer data protection, etc.

4. Do not offer a competing direct-to-consumer product that the banking institution may perceive as a threat to its own core business.

5. Ensure protection of consumers’ personally identifiable information (PII). Data security is extremely important to financial institutions and regulators. Also establish yourself as PII custodians by complying with standards established to protect consumer or transactional data, such as ensuring SOC-2 (System & Organization Controls, relevant to service organizations around security, availability, processing integrity, confidentiality or privacy) compliance and compliance with PCI-DSS (Payment Card Industry Data Security Standards).

6. Prepare for a long and difficult supplier vetting process and ready resources on information security practices and documentation. Investigate and test potential risks and be adapted to the company’s mitigation procedures for potential vulnerabilities and exposures.

7. Demonstrate your integration skills. Banks will not just accept a fintech that requires them to fit into the fintech’s process. You have to take stock of the banks’ established processes, anticipate their needs and then put together collateral and supporting documentation in line with that.

8. Establish direct and committed lines of communication with financial institutions and other fintechs involved in the partnership.

FIs still need to close the innovation gap

Almost all financial institutions understand that they need to change faster to adapt to new technological innovations. Pioneering fintech and digital challengers are quickly promoting consumer-friendly models. This forces traditional organizations to rethink their business and technology strategies to become part of the new banking environment that includes fintech, but does not threaten the structural integrity, interoperability, compliance and security of their system.

Despite increased attention from regulators, banks and credit unions need fintech partnerships to accelerate innovation and growth. A Q2 Holdings, Inc. report on banking innovation and digital development revealed that more than 60% of financial institutions see fintech partnerships as key to their growth strategy.

For fintechs to work with financial institutions, they need to demonstrate that they are ready for primetime banking. It means all the scrutiny and expectations inherent in offering integrated, reliable and secure banking products or services that seamlessly integrate into a bank’s core systems.

Fintechs seeking an entry card into the banking ecosystem must adhere to these essential elements to help pave the way to legitimately receive consideration as a viable choice for major financial institutions.