This month we take an in-depth look at fintech partnerships.
The days of banks trying to be everything to everyone are no
In fact, these days you can get credit without applying for
a credit card, obtain a mortgage without walking into a bank branch and manage
your money without requiring a current account.
The choices are endless, but as a consumer, having 20
different apps on your phone to manage your finances is not viable, which in
turn has given rise to super-apps (as discussed in a previous column).
To build a super-app, a broad ecosystem is vital, which is
underpinned by strong partnerships. This is very similar to the business model
of Costco – high-quality products sourced directly, sold at low prices to loyal
customers. There are four main types of partnerships possible in fintech, as
outlined below, ranging from purely economical to embedded partnerships.
If you can’t beat them, join them
The early days of the fintech revolution were about
“disrupting” banking, but incumbents and fintechs now increasingly work
together to lead innovation. US incumbent Bank of America and UK payments
start-up Banked recently partnered to launch a new online payments solution,
while UK incumbent NatWest Group has partnered with paytechs TrueLayer,
GoCardless and Crezco to launch its variable recurring payments (VRP) solution.
Technology is moving at such a rapid pace that building
products in-house makes little sense as the value-add is how you develop on top
of the technology stack, not in building the foundations. If JP Morgan Chase,
with the world’s largest technology investment budget (according to Omdia),
opts to partner with Thought Machine, a challenger core banking provider, as
opposed to using its own vast team of developers to build in-house, then it’s
clear what direction the industry is heading.
Modern technology stacks have enabled new entrants in
financial services to adopt an “a la carte” approach to deploying banking
products. This has enabled banks to offer their products “as a service” to
non-financial services brands through embedded finance by consuming specific
pieces of the banking stack. Embedded finance is just one of a number of
emerging trends which will alter the relationship banks (and fintechs) have
with their customers. Therefore, establishing and maintaining strong
partnerships is critical to ensuring relevance in the future of financial
Software vendors are partners, not providers
The evolution of financial services is changing at a rapid
rate, whether it’s how we pay, invest or save. Banks/fintechs require the
support of software vendors who are agile, flexible and forward-thinking.
Therefore, when making purchasing decisions, it’s not just about choosing the
best off-the-shelf product for most financial institutions; it is also
necessary to consider a vendor’s ability to support your firm’s aspirations.
This requires a strong partner—one that enables and drives innovation, offers a
strong user experience and provides advice on how to launch new products and
services quickly and effectively.
Solution breadth of vendors is increasingly relevant,
whether provided in-house or through a partner ecosystem, with financial
institutions less likely to adopt a “best-of-breed” policy when selecting
vendors and having a desire to work with fewer vendors who provide easy access
to wider functionality. Vendors should embrace partnership opportunities with
third-party providers through adoption of the marketplace model by opening
their APIs in order to add value to the ecosystem.
Although broad functionality is an important consideration
when selecting a product, the vendor ecosystem should not be discounted as it
provides the opportunity to tap into a multitude of niche suppliers. Future
innovation is likely to be driven through this ecosystem, benefitting the
financial institution in the long term by unlocking advantages beyond the
platform. Banks/fintechs should select partners with digital expertise and
industry domain and enterprise-grade capabilities, as well as a digital-mindset
approach to innovation. Growth requires a partner that can be trusted to
respond quickly to challenges as they arise and recognise and respond to the
difficulties a bank/fintech is facing on a real-time basis.
Curation will be king in fintech, underpinned by
The shift to digital banking has raised expectations around
customers’ relationships with their banking provider. They expect instant
support, real-time resolution and easy access to financial services that are
relevant to their needs. In the future, artificial intelligence (AI) and
machine learning will be able to predict and recommend financial services to a
consumer before they realise they need it themselves.
Owing to easing banking regulation for new entrants and the
introduction of open banking, several start-ups have been able to compete with
banks on specific segments of money movement. Mass-market consumer banking is
in decline with new entrants emerging to serve specific communities, including
Nerve (banking for musicians), Pancea Financial (banking for doctors), 11Onze
(banking for Catalonians) and Daylight (banking for the LGBTQ community).
Increasingly, consumers are having less direct contact with
incumbent banks through utilising fintechs that leverage banking licenses from
existing players or third-party providers that pull banking data through open
banking technology. Identifying the right kind of partnerships is crucial for
navigating emerging technologies, whether it’s web3, crypto or the metaverse.
Consumers, corporates and institutions will place trust in their direct
provider to curate a hyper-personalised service that utilises their wider
ecosystem of partners and ensures a superior user experience.
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