A recent Forbes article claims the fad is over for bank-fintech partnerships. The fad might be over, but the imperative for banks to partner with fintechs is anything but.
To be sure, there are valid points highlighting the over-inflated hype versus the reality in making these partnerships fruitful. Nevertheless, in our experience at INV Fintech, bank-fintech partnerships are nothing short of the “new normal” in banking technology.
It is true that many banks are either unprepared or have embarked on partnerships without well-articulated strategies or the necessary procurement processes and technological capabilities to ensure that these ventures flourish. This has understandably led to frustration. However, it doesn’t mean banks should give up on partnerships. On the contrary, they should develop clear strategies and the necessary core competencies that are crucial for partnership operations.
“For the things they cannot do well on their own, banks must develop a partnership strategy,” the Boston Consulting Group pointed out recently. This is key: banks just can’t do it on their own. For banks to remain competitive – regardless of the size of the financial institution – they are compelled to evolve their distribution models and product offerings to meet customer expectations in the digital realm. A failure to do so could leave them vulnerable to emerging challengers and tech companies that are vying for a piece of the pie.
Just as there are examples of banks that are struggling to execute partnership strategies, there also are promising initiatives and success stories to highlight. This includes Radius Bank and nbkc, as the Forbes piece highlighted, but many more financial institutions across the size spectrum have pursued partnerships successfully or are in the process of doing so. We certainly see evidence of that at INV Fintech with the 16 banks that are participants in our accelerator program.
Here are a few notable successes. Earlier this year, Ally announced a partnership with Better.com to launch a digital mortgage platform. TD Bank’s partnerships with Kasisto, Hydrogen, and others, have helped the bank catalyze its innovation efforts. Goldman Sachs is not only exploring partnerships, they are going a step beyond and acquiring fintech startups to fold into its digital bank, Marcus. First National Bank of Omaha recently launched its innovation lab, in part, to become more effective at partnering with fintech startups. Axos Bank partnered with N26 and Metropolitan Commercial Bank partnered with Revolut for their respective U.S. launches. Regulators are aware of the need and are voicing support for increased collaboration.
Others will follow, either with proactive steps or after realizing it will become a competitive disadvantage not to do so.
We acknowledge the rationale underlying other forms of collaboration that are noted in the article – including platforms, open banking and alliances between financial institutions themselves. We agree that they provide other avenues for interconnection between industry players. However, banks should pursue those options as part of a comprehensive partnership strategy, not as a replacement.
The objective ultimately is the same: to benefit from cross-pollination and new capabilities from new entrants to the industry. The path to get there will require the same building blocks: improving procurement processes, instituting an innovation-forward culture and developing APIs or other layers on top of legacy systems to enable data sharing and integration into core applications.
Fads might come and go. There’s clear evidence that shows bank-fintech partnerships were never a fad at all.
Rodrigo Suarez is the principal of INV Fintech, a NY-based startup accelerator focused exclusively on financial technology. Financial institutions interested in joining INV Fintech’s ecosystem can learn more here.