regulatory constraints, which leads to the death of most innovations. But guess who doesn’t have innovation problems? Fintechs. Q1 of 2021 was the largest funding quarter on record for fintechs. “Across 614 deals, VC-backed fintech companies raised $22.8B,” according to a CB Insights report . Furthermore, exit activity also hit a new high, at 11 IPOs and 67 M&A deals. Where Fintech and FI Unite Fintechs are agile and innovative, which empowers them to adapt quickly to emerging customer needs and market volatility — a necessity that most financial institutions lack. On the flip side, many fintechs often don’t have the brand recognition necessary for consumers and SMBs to trust them with their finances. Here we have a situation where fintechs and FIs complement each other’s strengths and weaknesses nicely. FIs have brand recognition, relationships and trust but need innovation. And fintechs have innovation and agility. It only makes sense for the two to partner to bring innovation to consumers fast. Let’s Do AwayWith Traditional Partnership Models Traditional processes for vetting and implementing fintech technology are expensive and time consuming, so FIs need to be certain of the ROI from an early stage. Hence, fintechs are met with a high bar from the very beginning when acquiring FI partners, leading to significant expenses and deployment of resources without the certainty of partnership success. Even if a fintech manages to get past the sales and vetting cycles, they have a custom integration to perform. Because FIs run on different systems, fintechs must perform a different integration for every FI they want to partner with. This limits the scalability of their product and delays the fintech’s ability to recognize revenue. For proper development cycles, fintechs need to get their product in front of customers quickly, get feedback and incorporate that feedback into
future product iterations. Building a fully featured product without customer feedback is a surefire way to waste your time and money. But this is the arrangement that current FI partnership models offer, and it challenges a fintech’s ability to drive efficient customer growth. A NewModel That Works A better partnership model would include a single, standard integration for multiple FIs. That way, fintechs don’t need to perform a custom integration each time they sell their product. These partnerships would consist of the rapid deployment of features and services so fintechs can test and iterate. Once these requirements are in place, fintechs and FIs can partner to deliver fast innovation; build deep, lasting relationships with their customers; and create a world where fintechs and FIs can live in harmony. FIs must stay true to the qualities that loyal customers like about them — stability, trustworthiness and legacy — when seeking partnership with fintechs. Fintechs can help FIs deliver more efficiency directly to customers and behind the scenes with internal processes, such as end-to-end encryption and algorithms. This, for instance, can be in the form of creating a seamless, user-friendly onboarding experience for customers through a new, modern smartphone app. The numbers don’t lie: traditional banks that use fintech see profits increase by approximately 40%, according to McKinsey & Company . In turn, FIs help fintechs by bringing their trusted clientele and their centuries-long experience of weathering through multiple disruptions to the industry. The Bottom Line? Fintech might be the new kid on the block, but it’s here to stay — it’s becoming the fabric of modern society. So, FIs must learn to work with fintech, not against it, and accelerate its adoption. Together, FIs and fintech can bring new life to the financial industry. ▪
Innovate at the next level Welcome to the new era of digital banking. Q2 Innovation Studio is built for what’s next — letting you offer the latest third-party financial technology directly inside digital banking. Q2’s platform is easily extended and lowers your risk by using a standard partnership integration.
Build sticky relationships with your account holders by giving them the differentiated experiences they crave.
THE FINANCIAL BRAND INSIGHTS WINTER 2021
THE FINANCIAL BRAND INSIGHTS WINTER 2021
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