Fintech Collaborations on the Rise
Fintech-bank partnerships result in growth opportunities. In this article, Krista Morgan examines the risk-reward relationship in this growing trend.
The strength of our banking system is that we trust it. That trust comes from knowing that banks follow rules designed to protect us. As consumers, we want to know that our money will be safe, our identities will be protected, and things will work the way we expect them to. We want all of that – but we also want a zero-hassle experience with our financial institutions that is incredibly fast and seamless.
Not an easy value proposition to deliver on. Banks need fintech firms to deliver experiences that today’s consumers expect. In fact, 89% of community banks believe bank and fintech collaborations will be common by 2027. At the same time, the banks need these fintech firms to maintain trust which, for better or worse, comes from regulatory compliance.
The concern is that fintech firms will come in, deliver a great experience, but put the bank at risk of non-compliance. And yet if fintech firms become too focused on regulatory compliance their culture of innovation and creativity that is inherently valuable to the bank is put at risk. The larger, more established, and “safe” fintech companies, are less likely to give a bank a huge competitive advantage. The improvements will be incremental versus game-changing.
Those game-changing fintech-bank partnerships that have resulted in huge growth opportunities for a bank result from taking a risk and being an early partner to a promising fintech company.
How does a bank weigh the risk-reward of working with an up and coming fintech company? Here are 3 signs that a fintech company has thought about the compliance needs of working with banks:
Audited financials.
An audit demonstrates that the firm takes their own finances seriously. It generally requires they have good controls, and more importantly, a strong internal finance lead who will likely be taking point on compliance activity the bank requires.
Data room.
A well-organized data room that contains all relevant information and is kept up to date is a sign that the fintech company understands there will be a diligence process involved in a bank partnership. It also demonstrates transparency and leads to trust which is critical for a strong partnership.
Willingness to comply.
A growing fintech company is going to have work to do to be in compliance and ensure their product meets regulatory requirements. What’s important is that they ask questions about what is needed, they ask for reasonable time periods to comply, and they demonstrate an understanding that compliance is critical to the success of the partnership.
The key is to combine the regulatory and compliance expertise from a bank with the innovation and creative thinking of fintech firms. The inherent tension and balance required to find a path forward is what makes a truly great partnership and can lead to strong outcomes for banks.
Krista Morgan is the cofounder and CEO of P2Bi, a Denver-based financing company that transforms growing businesses into industry leaders. Since she founded the company in 2012, P2Bi has become a leader in marketplace lending, with over $125M in total commitments and an unparalleled online financing experience.
