In Fintech, the Smartest Disruptors Are Partnering With Banks
Recent years have produced countless fintech companies threatening to “disrupt” the financial services space and change personal banking, financial planning, mortgages, loans, insert any other line of business forever. But have you noticed? Banks haven't gone anywhere.
Acquisitions and partnerships can partly explain why. Money talks, and when big institutions approach smaller fintech companies to partner up, startups can't help but pay attention. American Banker recently reported another reason: funding for these disruptive technologies has slowed, forcing alternative lenders and other fintech disintermediaries to search for ways to sustain themselves. For marketplace lenders, this likely means raising borrower interest rates to astronomical levels to make an acquisition more appealing to a large financial institution. Taken together, this evidence suggests financial technology and marketplace lending has officially peaked. Right?
Well, no. Independent digital marketplace may've hit their limits. But for fintech broadly, the opportunity for entrepreneurs to help banks adapt to the way today's customers want to do business is still endless. When banks and credit unions partner with a financial technology solution, they make themselves not only more relevant to their customers, increasing brand loyalty and customer sentiment, but also more competitive against the very ‘disruptors' who seek to take them out. As this Forbes article explains, the real winners in the fintech industry are those who make banks better - putting down the battle gear and exploring ways to work together. This cooperation is a triple win, for banks needing to modernize, fintech companies trying to survive, and most importantly customers.
For traditional institutions to thrive in this rapidly changing, and ever more competitive market, they should focus on building a more extensive set of digital capabilities, spanning from insights to security to consumer-facing applications and everything in between. Rather than develop these solutions in-house, which is both costly and time-consuming, banks should start by asking these three questions when evaluating a fintech partnership:
- Does this partnership create a streamlined, delightful experience for my customer?Increasingly satisfaction is tied to strong user experiences and the breadth and depth of digital offerings a bank provides. Speed of response, usability and message relevancy all have been shown to influence loyalty and trust (PDF).
- Does this solution play nicely with my legacy systems?
By and large, banks need to consider adapting legacy systems to the demands of modern technology. Finding a solution that integrates easily with existing systems can alleviate the time and effort it takes to launch any innovation.
- Is this solution compliant with existing regulations?
Compliance and fintech can and should go together like PB&J, though often many companies struggle with confusion around which financial regulations govern them. Fintechs should care about compliance and be more than willing to work with you to accommodate governance issues.
So, if you're a traditional financial institution (more specifically a traditional lender), fear not - you're likely not going to be disrupted into oblivion. But it's crucial to recognize how important digital and user-friendly financial experiences have become.