Beyond the buzzword: 3 tips to evaluate fintech partnerships

Fintech has been a dominant buzzword for some time. At its simplest, fintech is defined by Merriam-Webster as products and companies that employ newly developed digital and online technologies in the banking and financial services industries

Gartner’s definition is a bit more detailed: Fintechs are startup technology providers that approach financial business in innovative (sometimes disruptive) ways through emerging technologies. Fintechs can fundamentally change the way in which a financial services institution’s products and services are created, are distributed and generate revenue. The term may also refer to the technologies these providers offer.

Regardless of how broadly you define it, fintech is changing how financial institutions are delivering services and is a continually evolving space. At first, the focus of many fintechs was on providing services legacy financial institutions couldn’t, such as budgeting tools. During the early stages, fintech wasn’t viewed as a substantial threat to a financial institution’s core business of taking deposits and making loans. In fact, having an app that helps consumers budget and set-up savings goals could be viewed as helpful.

Over time, however, fintechs evolved to take more and more of the consumers’ traditional banking relationship away from the financial institution. For example, early peer-to-peer (P2P) payment services  integrated with consumer bank accounts to facilitate faster transactions. Over the years we have seen these P2P providers evolve to not only facilitate faster payments but also to retain the deposits in a spending account.

This is not an isolated example. We’re also seeing the trend of successful fintechs surpassing legacy banking systems in the areas of lending, credit coaching, wealth management, investments, payments, card services, crypto, and buy-now pay-later solutions, to name a few.

As the proliferation of fintech services continues across the financial industry, financial institutions have grown increasingly concerned about the loss of the relationships they have with their consumers. However, fintechs should not be viewed only as a threat, they should also be viewed as an opportunity. Since fintechs are typically much more agile than legacy financial institutions, they can pivot and respond more quickly to changes in consumer demand and technology. Therefore every financial institution should develop a strategy of partnering with these emerging technologies to provide the type of banking consumers demand, when and where they demand it.

Here are a few tips to help your credit union evaluate potential fintech partnerships:

1. Start by assessing your overall system architecture. Does it allow you to plug in – and unplug – fintech services with ease? If it takes weeks, months, or even years to write integration for what consumers are demanding, you’ll be behind the curve. It’s going to be difficult to keep up and may require a new type of architecture to be designed.
2. Next, select partners who are capable of tightly integrating with your core banking technologies. This is not simply limited to your “core” but also includes seamless integrations to critical systems like contact centers, CRMs, and other key operating systems.
3. Develop a strategy and stick to it. It is easy to get side-tracked by fancy technologies that promise a phenomenal ROI, but if those technologies do not align with your strategy, you are focusing your energy and capital in the wrong areas. Either revisit your strategy or refocus your attention.

Unless your institution can afford an army of developers, you’ll likely need to prepare for multiple relationships with various fintechs to meet ongoing consumer demands in specific areas. Remember, demand for technology is elastic and may change quickly. The tricky part is avoiding significant investments that don’t have longevity. Remember, not every feature is something that is a must have. Start with consumer demand and build your roadmap from there.