5 Best Practices for Bank-Fintech Partner Relationships

The number of FDIC-insured banks in the U.S. has been steadily decreasing for over a century. At its peak in 1921, there were 30,456 banks in the U.S. A Statista study shows that in 2000, there were 8,315 banks in the country, and as of 2021, there are only 4,236 banks. This makes us wonder why. Even though the population and need for money management have increased multi-fold, why has the number of banks decreased considerably? Some reasons for this decline include:

  • Establishment of FDIC (Federal Deposit Insurance Corporation)
  • High Rates of Bank Chartering, Failures, and Mergers
  • Extreme competition

The population of banks in the country is likely to decline even further because the more prominent players are consistently outperforming the smaller ones. They invest in the latest technologies and empower their customers with more efficient services. This brings us to another question. How can the other banks compete with these big banks without spending billions of dollars? 

The answer lies in bank fintech partnerships. Bank owners have started realizing that their expertise lies in managing and keeping money safe. They are not nearly as tech-savvy as some of the top fintech providers in the country. A bank relationship with such fintech providers is the fastest and the most economical way to grow and compete sustainably. Bank owners that want to collaborate with a reliable fintech provider can get the maximum value from their partnership by following these five critical best practices. 

 

Pre-Assessment is the Key

A study by Cornerstone Advisors from September 2021 shows that fintech partnerships are a key priority for most financial organizations. Nearly two-thirds of U.S.-based banks and credit unions have partnered with at least one fintech provider over the last three years. However, not all partnerships are successful. In fact, this article from Forbes talks specifically about why bank-fintech partnerships underperform. So, what can these financial institutions do to ensure success? Pre-assessment is a good starting step.

Ideally, the bank and the fintech partner should correctly understand each other’s requirements. They should assess the financial technology and scope of development beforehand to ensure that they are on the same page. Security compliance and infrastructure also take the top spot in assessment needs during the initial rounds of discussion.

 

Goal Setting and Regular Reporting to Stay on Track

So, the partnership is underway. A significant milestone achieved! But the work has merely started. The bank and fintech provider should have an open line of communication to share progress reports regularly. This is especially true for banks partnering with fintech startups that don’t have a lot of experience. A quarterly goal-setting exercise increases the bank’s confidence to continue building a relationship with the service provider. If the fintech company does not achieve the realistic pre-approved set goals, the bank should consider exploring other options.

 

Stay Away from “Hype Technology”

There is massive hype for the latest technologies in the financial services market. The hype around fintech innovations like blockchain technology, artificial intelligence, and machine learning is killing traditional banking. However, bank executives must correctly identify their needs before getting financial advice from these “next-gen startups.” Upon assessment, most banks realize that such technologies are still in the very early stages and that heavy investment will not yield results for years to come. Instead, investing in tried and tested technologies like mobile banking, Robo advisors (IVR technology), SMS paymentsEmail invoicing, and online banking (hosted payment portals) is the safest and fastest way to get ROI from a fintech partnership.

 

Create a Bank Partner Portal to Share Resources 

Seamless exchange of information between the partners is essential for continued sustainable growth. The fintech partner is necessary for sharing guides and testimonials on their technically advanced products and services. On the other hand, the bank should share the required financial data so that the fintech provider customizes solutions according to the growing needs. A dynamic relationship that lets the bank implement the right technologies quickly helps both partners in the relationship. The fintech provider should create a well-organized shared bank partner portal to share critical information with multiple stakeholders.

 

Consider Serving Customers at All Stages

The fintech provider should have solutions that help the bank target customers throughout its sales cycle to get the maximum ROI from this partnership. The bank should also partner with a fintech company with technologies that serve the broadest range of customers. For example, fintech providers that focus on offering ACH and credit card payment solutions can serve individual clients, small merchants, and large commercial clients. Casting a broader net to serve more customers will help the bank reach a breakeven point for their investment faster.

 

Fintech providers with a strong customer support team and open APIs (Application Programming Interface) to work with banks are best positioned to facilitate growth. Following the best practices within such partnerships reduces complications and increases sales for various financial products. If you are a financial institution that wants to start exploring top-of-the-line payment technologies to serve your customers, reach out to us todayDownload our product catalog to know more about our solutions!

 

Date originally published: June 06, 2022 

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