How to navigate the fintech waters
Seeking fintech partnerships can be both exciting and scary for credit unions. Fintechs have, after all, changed the financial industry’s competitive balance and in the process offered services that lured many consumers away from traditional providers.
But many fintechs are seeking partnerships with traditional financial institutions to build scale and generate revenue, says Steve Williams, president and partner at Cornerstone Advisors.
The company works with credit unions to assess their position in the market and determine when partnering with a fintech firm will help them achieve desired results with a member-centric strategy.
“You don’t just decide to partner with a fintech firm,” says Williams. “What is the reason for the decision? Do you want to improve your marketing skills? Is this linked to a digital experience? Is this a new product you want to offer? If it’s not tied to an outcome and it’s not part of the strategy, too often it ends up being a distraction.”
To assist in the evaluation process, Cornerstone’s expert team tracks developments within the fintech ecosystem, giving clients “a tour of what’s currently out there in terms of best practices,” he says. “For example, if you’re looking for increased contact center analytics, we know who’s playing. If you’re looking for the next generation of digital account opening, here’s who the players are.”
‘Set hard deadlines and hold people accountable for execution.’
Steve Williams
Due diligence is an important part of the process. “Fintechs are not banking experts,” says Williams. “They find a lot of the compliance and operational parts of the process a real pain. Make sure you cover all the important elements of due diligence, including everything from implementation to marketing and branding.”
Fintechs are also notorious for convincing, he adds. “Initially, working with a fintech might be fun, but 15 months later you might still not have results. You have to set hard deadlines and hold people accountable for execution.”
It is therefore important to choose a fintech partner with a proven track record.
“Have they been through the alpha and beta stages where they have had to learn the process? It is important that they have been through some character-building projects so that they understand the regulated financial institution market, says Williams. “If not, consider it a co-development where your ownership is greater. You should get more equity if you help them build it.”
It is also important to understand risk appetite within the fintech world, he says. “It’s different to the traditional banking world. It’s high risk and high reward. It’s more hit and miss. Out of 10 projects, you may have four dogs, four that are fine, and two that are outbursts.
“Transparency is key,” Williams continues. “Like any other investment, you should have a result in mind.”
