Corporate banks are not typically known for their risk-taking. However, driven by seamless digital experiences, commercial banking clients have come to expect fast, frictionless transactions from every company they do business with… including their bank. When it comes to delivering those services, forward-thinking institutions like know that partnering with the right fintech can be the most effective and low risk way to develop innovative new services quickly.
There is no shortage of fintech businesses offering a variety of specific services with different degrees of value. According to Deloitte, payments is one of the most disruptive and dynamic banking opportunities in-sector(1). Legacy systems have been plagued with slow, manual and friction-filled interactions that are ready to be disrupted. Fintechs like FISPAN are working hard to reimagine the payments landscape and introduce the potential of truly contextual banking experiences to their customers at scale.
Fintechs frequently team up with financial institutions to help them strategically scale products and services. While these partnerships are practical and productive, they can also introduce problems. There are regulatory considerations, technical limitations and more. In this post, we’ll help you plan for a successful long term partnership, and take advantage of what these fintechs offer to help you innovate quickly and easily.
To determine if a fintech is the right fit for your bank consider these three key factors:
Relationships with regulators.
Innovation in financial services has accelerated rapidly in recent years. In many instances, regulators are falling behind these tech- leaders creating increased uncertainty about future rules. Fintechs must follow federal and state laws, and it’s important to understand how your fintech partners are planning to manage regulatory obstacles that are coming in the future. This begins by first establishing that your partner is in good standing with the right regulators. Here are some other important questions to consider:
- How are they tracking and following the rules, and what steps will they take to make changes as the rules evolve?
- Which regulations apply to their current products and services?
- What license or certificates are they required to have? (and do they have them?)
Managing compliance is a two-way street. Banks are obligated to develop a vendor management program with oversight over their partners. It is also a good idea to appoint an in-house expert or nominate a senior member of your team to build a relationship with regulatory bodies.
Data-privacy and security practices and response plans
Fraud is on the rise and while cheques are still the most popular method for business-to-business payments in the US, they have declined from 81% in 2004 to 42% in 2019 (2). Unfortunately, fraudsters are sneaky. As more and more banks transition to digital payment systems it is expected that there be a proportional increase in fraud. With that in mind, it is important to know whether your partner has a fraud prevention program in place. Do they have the ability to recognize if their customers are at a greater risk of fraud? How do their fraud prevention programs contribute to the overall customer experience (do they make it slower or needlessly difficult for the customer)? Prevention is only one aspect– a bigger-picture understanding of how they will respond to a data breach is equally important.
Reputation, resilience and viability
Innovative and up-and-coming start-ups have had a huge impact on how the financial services sector operates. But because the business is most likely new, it’s important to ensure the leadership has deep experience in both the financial space and SAAS (software as a service). Before you agree to a partnership try to figure out:
- The reputation of the executives
- Their standing in the commercial banking industry
- Their immediate competition and unique capabilities
- Their governance model
- A 3-5-10 year plan for revenue and funding
When it comes to driving innovation, commercial banks have extensive resources and the increasing support of their senior management teams. Since the industry is crowded with new start-ups competing for the banks’ business, banks should be sure to perform thorough due diligence. Although the procurement process, legal and security will cover most of the basics in the later stages of the on-boarding process, ensuring a potential partner displays the three key factors above will not only speed up the process but pay dividends in the long run.
Would you like to learn more about this topic? Check out our blog post, Banking on Fintechs.