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FINANCE

How Partnerships Fuel Fintech Innovation and Help Banks Deliver a Better Customer Experience

Five steps the UK must take to keep its Fintech crown

How Partnerships Fuel Fintech Innovation and Help Banks Deliver a Better Customer Experience 44

 

By Shawn Conahan, Chief Revenue Officer, Wildfire Systems

It is an exciting time to be in the financial services industry as we witness a massive paradigm shift away from “back office” banking functionality measured in metrics like total deposits to a more customer-centric definition of banking that includes innovative products and measurement of engagement and loyalty as top metrics. 

As a banking customer, I absolutely love the vast array of products available to me today, and I marvel at how quickly many of them have come to market. It seems like only the past five years or so has been responsible for the majority of the shift we have seen. Customers now have virtual wallets, NFC, BNPL, crypto, financial management, and loyalty products – just to name a few – at their fingertips.

The biggest factor fueling this innovation is the massive amount of investment in the fintech sector, and the ensuing ability of those fintech companies to capture the imagination of consumers to make their banking experience better. More importantly, those fintech companies have brought their innovation to market largely through partnerships with other fintechs as well as with financial institutions (FIs). The financial services industry is now a true ecosystem of partnerships, where all ships are rising with the tide. 

While business imperatives for growth certainly drive the industry’s appetite for partnerships, also remember that consumers are an equally important factor because as consumers we want simplicity, and we want value. Put another way, consumers say they want the innovation that fintechs provide, but they would prefer to have it from their primary bank. For instance, in their Q1 2022 Payments Report, the Auriemma Group asked consumers the “Likelihood of Installing Browser Extension Similar to Capital One Shopping” of which  53% of consumers answered “Somewhat likely” or “Very likely.” 

When asked “Likelihood of Installing Browser Extension Similar to Capital One Shopping if Offered by Primary Bank,” that number shot up to 66%.

Partnerships Drive Go-To-Market Strategies

The response by traditional banks then becomes a “build vs. buy vs. partner” analysis, and partnership seems by far to be the preferred go-to-market strategy. It enables large FIs to leverage the trusted relationship they enjoy with their customers while integrating the innovative products churned out by startups in the fintech sector to further delight an already loyal customer base. This synergistic approach is highly appealing to both fintech and traditional FIs alike. The former gets access to a customer base that otherwise would have been prohibitively expensive to acquire, while the latter gets access to technology that would have been prohibitively expensive to develop. They both share risk, of course, but they also share the reward of the value they create together.

The partnership trend is a significant one, and thought leaders in our industry are paving the way to increased innovation through partnership. One of the most influential investors in the fintech sector, QED Investors, recently co-authored a paper with one of the most trusted consulting firms in the financial services sector, the Boston Consulting Group. The whitepaper, published in  April 2022, is entitled “Matchmaker, Make Me a Match – Best Practices in bank-fintech partnerships.” In it, the authors help to demystify the bank/fintech landscape and provide some structure to the evolution of the industry we are seeing by segmenting the fintech sector into “Enablers,” “Adjacent Competitors,” and “Direct Competitors.” 

While Enablers like Plaid have a fairly straightforward value proposition in that they help banks, and as does direct competitor PayPal in that they do what banks do, it is perhaps the adjacent competitors like Stripe or Shopify that are the most intriguing potential partners because they do what banks could do. A partnership here could look like a white-label arrangement, with the added charm of creating enough value to dissuade the adjacent competitor from becoming a direct competitor. 

In any case, fintech leaders know that achieving success solely on their own can be very expensive and take a long time. In the face of a cooling investment environment, there is little doubt that partnerships, when executed properly, are a way to accomplish their goals faster. Similarly, banks understand that to make the investments in technology required to stay competitive would be risky and more likely simply impossible. And so here we are, in a rapidly evolving industry that has turned into an ecosystem of partnerships bringing unprecedented innovation to market. 

The ultimate winners? Banks for sure; fintechs certainly. 

But more than any other participant in this ecosystem, the consumer wins the most.

 

About the author:

At Wildfire, Shawn develops strategic partnerships with major finance, banking, and fintech companies to enable the creation of new revenue streams and modernizing their customer experience to position them competitively for the future of banking and money. He has been an entrepreneur, senior executive and investor in the wireless, technology and Internet industries for over 15 years, having previously built and sold three companies. His industry experience ranges from digital media to wireless technology to big data where the common thread has been building platforms with broad applicability.

 

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