FinTech Partnerships: Stop, Collaborate & Listen
In 2019 collaboration has finally caught the attention of the financial services industry as competition is intensifying, and tech giants such as Google, Apple, Facebook, and Amazon are all taking steps to break into the financial sector.
Partnerships are critical for incumbent banks and financial services companies to stay ahead in a crowded market. Collaboration allows them to upgrade their technological capabilities and their digital customer experience faster – and at a lower cost – so they don’t lose out to new players in the market.
Viktoria Ruubel, Chief Product Officer at IPF Digital, looks at the ways that partnerships can be a win-win-win situation: for the bank, the FinTech and ultimately, the customer.
Building synergies around product, technology, or talent access
One way that banks and other financial institutions are collaborating is through licensing technology or software from other businesses in the form of a white-label. This provides financial organisations with immediate access to the latest, state-of-the-art technology stack, gives access to new products and speeds up time to market. Meanwhile the FinTech start-ups, that are often providers of the technology, get access to consistent revenues streams, and the software providers have the opportunity to invest in adding new capabilities to their portfolio of services. There are many examples of this type of partnership including Mambu and N2, Starling Bank and Raisin.
At a time where there is a battle for top talent across multiple industries, the financial services industry is not exempt from the challenge of finding talented engineers, scientists, and other skilled employees to design, build and serve new digital platforms, products and offerings. It is therefore not surprising that many companies partner with specialised service providers to tap into the world’s best expertise. A good example of this is the partnership between Discover Financial Services and Zest finance, which are leaders in artificial intelligence (AI) software for underwriting. They announced a partnership tasked with the creation of one of the largest AI-based credit scoring solutions in the financial services industry. Partnerships of this kind drive faster innovation and the adoption of new technologies like AI.
At a time where there is a battle for top talent across multiple industries, the financial services industry is not exempt from the challenge of finding talented engineers, scientists, and other skilled employees to design, build and serve new digital platforms, products and offerings.
Until a few years ago, no one would have anticipated the extent to which big industry players have invested in and become reliant on partnerships. These partnerships also present great opportunities for smaller companies looking to increase their market share.
Building seamless customer experience
Another common form of collaboration we have seen is banks choosing to set up partnerships with the aim of improving the ‘digital experience’ of their existing customers. Partnerships create a massive opportunity for businesses: enabling them to streamline internal processes, add technological capabilities, and most importantly, improve the end customer experience.
Customers are increasingly turning to digital channels to manage all aspects of their life, and financial services is just one industry being revolutionised by digital. With customer expectations for a seamless service ever-increasing, providing fast, convenient digital services has become critical for banks if they want to keep customers satisfied and sustain their competitive advantage.
Until a few years ago, no one would have anticipated the extent to which big industry players have invested in and become reliant on partnerships.
For established banks, partnering with a FinTech or Backend as a Service (BaaS) organisation offer an accelerated path to providing the best customer experience, which can be difficult to develop in-house due to legacy systems. At IPF Digital, we have partnered with several innovative players (e.g., Kontamatik, ElectronicID) to utilise their technology capabilities in ‘know your customer’ (KYC) and online verification, to provide a seamless digital onboarding experience for our customers.
Aiming for the win-win
For partnerships to be truly successful they must be equitable and aligned with both of the companies’ strategy and values, and they should benefit both partners in order to support the longevity of the collaboration.
One of the real challenges facing any high-growth oriented company, be it a young challenger bank or a mature FinTech aiming to speed up its growth, is finding and sustaining efficient customer acquisition channels. Partnering organisations with an existing, large customer base is appealing as it provides access to hundreds of thousands of customers that can benefit immediately from the attractive FinTech offering. Meanwhile the partner provides additional value to the consumer and adds the possibility of new monetisation opportunities. An excellent example of this is the collaboration between Affirm and Walmart announced in February this year.
By combining their resources and brand power with the innovative solutions created by FinTechs, banks will find they are able to serve new customer segments.
By combining their resources and brand power with the innovative solutions created by FinTechs, banks will find they are able to serve new customer segments. An example of this type of collaboration is the partnership launched between Kabbage and ING in 2017, which allowed ING to expand its small business lending into France and Italy.
Finally, partnerships can help businesses at both ends of the size spectrum to achieve efficiency, enable faster time to market, and ultimately speed up revenue generation. For established financial institutions, there are significant benefits: from fostering internal innovation to ensuring customer satisfaction and retention. The benefits for FinTech start-ups are also substantial, enabling the FinTech business to gain access to funding without giving away equity, and secure an alternative cashflow.