How to navigate the fintech waters
Partnerships call for predetermined strategies and desired outcomes.
Seeking fintech partnerships can be both exciting and scary for credit unions. After all, fintechs have changed the financial services industry’s competitive balance and in the process offered services that lured many consumers away from traditional providers.
But many fintechs seek partnerships with traditional financial institutions to build scale and create revenue, says Steve Williams, president and partner at Cornerstone Advisors.
The company works with credit unions to assess their position in the market and determine when partnering with a fintech firm will help them achieve desired outcomes with a member-centric strategy.
“You don’t just decide to partner with a fintech firm,” Williams says. “What’s the reason behind the decision? Do you want to improve your marketing capability? Is this tied to a digital experience? Is this a new product you want to offer? If it’s not tied to an outcome and it’s not part of strategy, too often it ends up being a distraction.”
To assist in the evaluation process, Cornerstone’s team of experts tracks developments within the fintech ecosystem, giving clients “a tour of what’s currently out there in regard to best practices,” he says. “If you’re looking for heightened contact center analytics, for example, we know who’s in play. If you're looking for next-generation digital account opening, here's who the players are.”
Due diligence is an important part of the process. “Fintechs are not bank operations experts,” Williams says. “They think a lot of the compliance and operational parts of the process are a real pain. Make sure you cover all the essential items around due diligence, including everything from implementation to marketing and branding.”
Fintechs also are notorious for overcommitting, he adds. “At first it can be fun to work with a fintech, but 15 months later you still might not have any results. You have to set hard deadlines and hold people accountable for execution.”
That’s why it’s important to choose a fintech partner with a proven track record.
“Have they been through the alpha and beta stages where they've had to learn the process? It’s important that they’ve been through some character-building projects so they understand the regulated financial institution market,” Williams says. “If not, consider it a co-development where your ownership is bigger. You should get more equity if you're helping them build it.”
It’s also important to understand risk appetite within the fintech world, he says. “It’s different than the traditional world of banking. It’s high risk and high reward. There’s more hit and miss. Out of 10 projects, you might have four dogs, four that are okay, and two that are breakouts.
“Transparency is key,” Williams continues. “Like any other investment you should have an outcome in mind.”