Fintech startups partnering with banks could be a good thing

As originally published in Tech.Co on July 7, 2017.

The surge in fintech startups isn’t just an anomaly — it’s becoming a trend.

Between 2015 and 2016, research by KPMG found challenger banks saw a 32 percent spike in lending compared with a 5 percent drop for incumbents. Where is this increase coming from? Probably from challengers’ willingness to explore new methods and technologies.

While disruptors may enter markets unbiased by existing models, financial institutions are beginning to experience competition from all angles, including large retailers, making it tougher for them to lean on that de facto oligopoly. Fortunately, banks and fintech startups often share a common vision and desire to streamline the customer experience and joining forces allows each to help provide the best possible service in the shortest possible time frame.

Benefits of a Bank/Fintech Partnership

Our company first partnered with a large financial institution in 2014 because it was the best way to validate our product, instantly grow our user base, and mature both our product and our business methods — in the process, we grew.
Large banks might have millions of users, and it can take a startup a very, very long time to even begin to approach those numbers. On the other hand, financial institutions learn about being nimble and agile and can experience how quickly an innovative idea can make it to the market.

Partnerships between fintech companies and financial institutions are often overlooked by both parties as an option. Young entrepreneurs are independent and would probably rather build a standalone project than partner with a “dinosaur,” and the dinosaurs probably view startups as unreliable, ephemeral harbingers of unwanted change.
When differences can be put aside for the sake of mutual progress, three principals will characterize an effective partnership for both organizations:

Be Quick and Committed
Financial institutions should place bets and adopt as many fintech products as they can. Execution is the best weapon, so competing means putting out as many products as possible and giving them the best chance to succeed. For a startup, that means using the new resources made available to you in the most efficient way possible. Find that sweet spot between developing a fully formed entity and a bare-boned minimal viable product.

Be Collaborative With Users
An effective partnership should give the end user the ability to enable and disable different services provided by fintech companies in the core banking app with high level security. For instance, a customer would be able to turn on a concierge service for any relevant, nearby financial experiences, then collect receipts from those transactions in another app. This provides a marketplace for startups, while financial institutions merely focus on backend services and governing data through security methods. Everyone — customers, startups, and incumbents — win.

Be Informed
Fintech startups need to understand what it takes to deploy true enterprise-grade products. Navigating challenging regulatory environments through a proxy provided by a larger institution helps them gain valuable experience. Meanwhile, financial institutions can learn new processes, methods, and approaches to serving their customer.

Partnering with a fintech allows incumbents to stay current, stave off competition, and potentially benefit from the disruptive power of a startup. Fintech startups stand to gain the massive user base that large institutions enjoy and catapult themselves to a much larger stage. Each is effective on its own — but they’d be much better together.

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