Bank-fintech partnerships are serious business

An effective bank-fintech partnership framework aligns objectives, establishes trust, and enforces transparency between the two parties. The following framework, built on three core principles, is a good place to start.

It can be tempting to focus only on the immediate and most appealing aspects of a bank-fintech partnership. But if parties dive in without alignment on outcomes or due diligence, they could encounter complications that ultimately erode the satisfaction and trust of their most important asset: customers.

Here are some strategies both banks and fintechs can employ when pursuing a partner or sponsor bank.

Just like with personal relationships, taking time to identify and confirm the right bank or fintech partner can prevent problems down the line.

Organizations should not assume that a potential partner has similar qualities in mind. Performing appropriate due diligence can answer important questions, including:

• Do overarching values and business strategies align?
• Are customer bases coordinated?
• How much data and information are parties willing to share?
• What reporting is expected in terms of content, accuracy, timeliness, and transparency?
• Are core systems and technologies compatible?
• Can systems efficiently and productively integrate?
• How will the bank share risk management activities, knowing it is the accountable party?
• How might combined short- and long-term goals benefit customers?

In past cases, many banks handed more control to fintechs (for example, customer relationship management and complaints handling) to reap initial growth and technological benefits more quickly. However, evolving regulations are changing the playing field. Banks and fintechs that take the time to meet as equals and choose the right partner could benefit more in the long run than those who rush.

Management teams are responsible for exploring new products and initiatives. However, given the level of access to customers, strategic insights, and data inherent in many partnerships, they should also have the attention of the boards and other critical governance committees.

Each governing body should challenge whether the strategies of partner organizations align with their own company’s strategy. Any risks should exist within the defined risk tolerance of the organization.

Best practices for managing risk in a bank-fintech partnership include ongoing monitoring of any type of trigger event that might cause a change in risk profile. Such triggers can include operational failures, litigation, data breach, regulatory concerns, complaints, and imminent threats to the company’s financial viability or reputation. The board should receive monitoring updates regularly.

Regulations and technologies change, but all routes lead to customers. Both parties should have compatible commitments to meet their customers' expectations for the best chance of success.

Similarly, any opportunities and points of contention faced in a bank-fintech partnership can trickle down to customers. A healthy bank-fintech relationship built on trust, transparency, and aligned strategies can support increased benefits and faster innovations. Existing customers can have more incentive to stay and potential new customers can be confident amid change.