As banks look to improve the products and features they offer you, they
are turning to startups for help.
This would have seemed unlikely five or so years ago, when a plucky
group of financial technology companies began popping up with the goal of
upending the traditional financial services industry with simplified products,
easy-to-use interfaces and great looking apps.
Turns out it wasn’t so easy to put the likes of Bank of America or Chase
out of business. The combination of embedded trust in the safety of
well-established institutions and customer inertia has made getting customers
to sign up for new services a major challenge. Even the most successful fintech
companies have managed to grab just a sliver of the market, in things like
personal loans, deposits and wealth management.
Instead, over the past few years, banks and fintech companies have figured
out that not only can they co-exist, they can develop symbiotic relationships —
with fintech firms bringing the innovation and fresh thinking and banks
bringing the regulatory understanding and, well, the customers (not to mention
the proven business model and regulatory understanding).
As banks respond to the pressure to improve their digital offerings,
these types of partnerships will likely become more frequent.
“At their core, these collaborations are about banking trying to make
their digital offerings more interesting,” says Bradley Leimer, managing
director and head of fintech strategy for Explorer Advisory & Capital.
Who has partnerships?
Well, it’s hard to say exactly how many of these types of partnerships
have been struck. That’s partially because it’s hard to define what constitutes
a fintech company and a partnership versus a vendor and a contract.
Banks often have dozens of technology providers that help them run the
business. Most companies do. Essentially, sometimes banks tag these contracts
as fintech partnerships to drive home the message that they are being
innovative.
That’s not to say these aren’t substantial improvements to their ability
to deliver products and services digitally.
For instance, TD Bank has a wildly successful budgeting tool
called MySpend that is offered in Canada and
was built by Moven, one of the original neobanks. Last year, TD and Moven extended the agreement to
the U.S., but MySpend has yet to launch here. (Moven also exists independently
but also licenses its technology to companies in a process known as white
labeling.)
TD also announced late last year that it’s working with Kasisto to add
a conversational chatbot to its digital products.
“This leading AI platform will give customers instant support and access
to real-time spending insights through an experience that really is as natural
as texting with a friend,” Tim Hogarth, vice president of innovation framework
and strategies at TD Bank Group, said in an email.
Alleviating consumer pain points
Fintech companies are often marked by the way they’ve developed
products. They tend to identify a specific problem and set out to solve it.
Neobanks sought to change the way we manage our money in our checking
accounts and eliminate the fees that creep up when we run out
of money. Marketplace lenders used technology to make the process of getting
a personal loan super fast and easy and found a woefully
underserved market. Robo-advisers found a way to bring investing to people who
don’t have enough assets to garner the attention of traditional providers.
Cracking the code on making things very easy to use is key for banks
right now. Many of them are trying to become more customer-centric, but it’s
tough to do within the confines of a well-established company with legacy
systems, bureaucracy and “that’s the way we’ve always done it” thinking. It
makes a lot of sense to turn outward to bring forth change.
“Fintechs have had a lot of success in removing customer pain points,”
says Trish Wexler, chief communications officer for JPMorgan Chase’s retail
operations. “Our customers are showing us where we need to improve, and we’re
paying attention. They expect speed, simplicity and to be able to do what they
want on any device.”
JPMorgan Chase has been particularly aggressive in this regard. It has
taken a build, buy or partner strategy with fintech innovation. In other words,
it is building what it thinks it can, partnering where it makes sense and
buying companies it thinks will give it a competitive edge.
Noteworthy partnerships include its deal with TrueCar and Roostify. With
TrueCar, Chase is making it easier for people to pick out the car they want,
secure financing and then go to the dealership. In doing so, Chase is
disrupting its indirect auto business to respond to the way we now shop for
cars.
With Roostify, Chase is trying to make the mortgage application process
easier and says it has managed to reduce the time it takes to process a
refinance by 15 percent.
Internally, Chase’s neobank experiment Finn is also serving as a bit
of fintech partnership. Technology developed for Finn that makes it easy to open an account digitally was added to Chase’s
flagship digital products earlier this year.
What consumers need to know
The good news is you, the consumer, don’t really have to do much of
anything. Banks are partnering with fintechs to make the digital solutions they
provide to you much better. Indeed, much of the partnerships involve back
office things like compliance that you’ll likely never see.
However, there are a few things you should know. For instance, some
banks are partnering with alternative lenders to provide their customers,
especially their small-business customers, with loans that they wouldn’t
otherwise underwrite. The thinking is that even if they aren’t the ones
providing the money directly, they still get the good association of giving the
customer what they want. Your bank should be rather explicit in telling you
that it is connecting you with a third party, but consider this an additional
reminder.
Similar advice should be followed in working with a robo-adviser
connected to your bank. Be sure to understand if your money is being managed by
the bank using technology provided by a fintech firm, or if this is just an
affinity relationship and your money is being managed elsewhere.
Click here for the original article from Bankrate.