{"id":11083,"date":"2023-12-04T18:29:53","date_gmt":"2023-12-04T18:29:53","guid":{"rendered":"https:\/\/connectwithfund.com\/tech\/the-beginning-of-the-end-of-bank-fintech-partnerships\/"},"modified":"2023-12-04T18:29:54","modified_gmt":"2023-12-04T18:29:54","slug":"the-beginning-of-the-end-of-bank-fintech-partnerships","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=11083","title":{"rendered":"The Beginning Of The End Of Bank-Fintech \u2018Partnerships\u2019"},"content":{"rendered":"<div>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">OBSERVATIONS FROM THE FINTECH SNARK TANK<\/h2>\n<p><strong>Prediction: <\/strong>By the end of this decade, bank-fintech partnerships will be a thing of the past.<\/p>\n<p>This prediction flies in the face of recent industry trends. Fintech partnerships have been an important objective for banks for the past few years. Cornerstone Advisors\u2019 2023 What\u2019s Going On in Banking study found that 70% of banks said partnerships were important to their 2023 business strategies, up from nearly two-thirds in 2022.<\/p>\n<p>Bank-fintech partnerships have become inevitable in the eyes of some industry observers. According to a Knowledge@Wharton article titled Why Partnerships Are the Future for Fintech:<\/p>\n<p>\u201cAs the finance industry grapples with what the next generation of banks and payment systems will look like, it\u2019s clear that partnerships are a linchpin for riding the wave of change successfully.\u201d<\/p>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>What are banks trying to accomplish with fintech partnerships?<\/p>\n<p>It\u2019s more than just providing banking as a service (BaaS) services to fintechs. In Cornerstone\u2019s study, 40% of banks cited improving lending productivity as an important fintech partnership objective, 36% mentioned growing deposit volume, and 31% listed increasing loan volume.<\/p>\n<p>The results from fintech partnerships have been less than stellar, however. Just one in three banks have seen a 5% or more increase in loan volume from partnerships, and half as many have realized at least a 5% gain in non-interest income.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Why Bank-Fintech Partnerships Fall Short<\/h2>\n<p>There\u2019s no doubt that banks face technology-related issues\u2014like integrating to core, ancillary, and digital banking systems, as well as a lack of API experience\u2014when executing fintech partnerships. There are other contributing factors, however, like:<\/p>\n<ul>\n<li><strong>Insufficient personnel.<\/strong> Among banks with less than $100 billion in assets, half have no personnel dedicated to financial partnerships, and those that have them just 2.5 FTEs. How many partnerships can a bank identify, vet, negotiate, deploy, and scale with just 2.5 people?<\/li>\n<li><strong>Inefficient organizational structure. <\/strong>Among banks with dedicated fintech partnership roles, a third have only a centralized team and another third only have partnership personnel distributed throughout the bank. Banks need a hybrid model\u2014a centralized team to handle IT integration and line of business personnel responsible for the execution of the partnership.<\/li>\n<li><strong>Lack of a partnership competency. <\/strong>Fintech partnerships is a new endeavor for most banks. Folks from IT and the lines of business may be experts in what they do, but that doesn\u2019t mean they have the skills and experience to lead fintech partnerships. And it\u2019s not a job for procurement.<\/li>\n<\/ul>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">They\u2019re Not Really Partnerships<\/h2>\n<p>These shortcomings are fixable, but another issue has become the proverbial elephant on the table: Many bank-fintech partnerships aren\u2019t really \u201cpartnerships\u201d\u2014they\u2019re client-vendor relationships.<\/p>\n<p>In a Forbes article titled <em data-ga-track=\"InternalLink:https:\/\/www.forbes.com\/sites\/franksorrentino\/2023\/11\/28\/better-together-the-evolution-of-bank-fintech-partnerships\/?sh=1038920e9e2d\">Better Together: The Evolution Of Bank-Fintech Partnerships<\/em>, ConnectOne Bank CEO Frank Sorrentino quotes Nathaniel Hartley, CEO of MANTL, about how the fintech builds \u2018being a good partner\u2019 into its strategy:<\/p>\n<p>\u201cWe take a consultative approach to our client relationships to help our customers extract meaningful value from our technology. It is a differentiating factor and critical to maintaining successful, long-term bank-fintech partnerships.\u201d<\/p>\n<p>Note that Hartley referred to his firm\u2019s \u201c<em>client<\/em>\u201d relationships. Hartley\u2019s approach doesn\u2019t just describe a good partnership, it describes what any good <em>vendor<\/em> or <em>service<\/em> <em>provider<\/em> must do. It\u2019s being \u201ccustomer-centric.\u201d<\/p>\n<p>The term \u201cpartnership\u201d implies\u2014if not means\u2014shared risk and reward. This isn\u2019t the nature of most bank-fintech relationships, however\u2014banks <em>purchase<\/em> or <em>procure<\/em> technology and services from fintechs.<\/p>\n<p>This is more than a terminology issue. Banks are already challenged by the daunting task of managing lots of technology and service providers. Calling a provider a \u201cpartner\u201d doesn\u2019t minimize or alleviate the vendor management challenge.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">The Coming Decline in Bank-Fintech Partnerships<\/h2>\n<p>This is also more than a terminology issue because of the future of fintech. Despite the angst that many in the fintech space (it\u2019s not an industry) feel, fintechs have a bright future ahead of them.<\/p>\n<p>To oversimplify things, fintechs come in two flavors: 1) those that compete with financial institutions, and 2) those that support financial institutions.<\/p>\n<p>What\u2019s the future of the first group? They will:<\/p>\n<ol>\n<li>Succeed at competing with banks and become established players in the banking industry;<\/li>\n<li>Fail and go out of business; or<\/li>\n<li>Fail and pivot their strategy to offer their products\/services through banks (see HM Bradley for a good example of this).<\/li>\n<\/ol>\n<p>What\u2019s the future of the second group? They will: 1) fail and go out of business, or 2) succeed and become established players in the bank tech space.<\/p>\n<p><strong>My bet: <\/strong>By 2030, many of those in the first group that pivot and offer their products\/services through banks (#3) will be acquired by banks, and many in the second group that succeed (#2) will be<strong> <\/strong>acquired by established bank tech firms like FIS, Fiserv, Jack Henry, Q2, Alkami, NCR Voyix, etc.<\/p>\n<p>This is hardly a far-fetched prediction\u2014it\u2019s exactly what\u2019s happened in the bank tech space for the past 20 years.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">What Banks Need to Do<\/h2>\n<p>The decline in the stated importance of \u2014and focus on\u2014partnerships doesn\u2019t mean, that banks\u2019 use of and involvement with fintechs will decline. Smarter bank will:<\/p>\n<p><strong>1) Refocus \u201cinnovation\u201d efforts on tangible process improvement and revenue creation. <\/strong>The days of the \u201cfintech petting zoo\u201d where bankers go to their boards and point to their fintech \u201cpartnerships\u201d with as proof they\u2019re \u201cinnovating\u201d is over. Banks need to find and select vendors who help them operationalize process change and new product\/service creation.<\/p>\n<p><strong>2) Increase their investment in\u2014and use of\u2014fintechs.<\/strong> In many ways, banks have become the new venture capitalists in the fintech space. According to Cornerstone Advisors, there are about 500 community-based financial institutions investing in fintech startups, averaging $4 million in funding per institution. What many are not doing enough of, however, is implementing those fintechs\u2019 solutions.<\/p>\n<p><strong>3) Change vendor selection criteria. <\/strong>Vendors\u2019 innovation capacity needs to become a more important component of vendor selection criteria. Filling gaps in features and functionality is a whole lot easier than helping banks innovate on processes and products.<\/p>\n<p><strong>4) Make data-driven vendor decisions.<\/strong> How will banks know if tech vendors really live up to the innovation capacity requirement? Consultants will certainly continue to play a role. But banks need a more data-driven view. I\u2019m keeping an eye on providers like True Digital Network and Naya One (with its \u201csandbox as a service\u201d concept) that promise to enable this.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Last Word: The BaaS Morass<\/h2>\n<p>Just to clarify: The impending decline of bank-fintech partnerships does not spell doom for banking as a service.<\/p>\n<p>Just as the so-called \u201cpartnerships\u201d described above are really client-vendor relationships, the same is true in BaaS, except the roles are reversed: Fintechs are the clients, and banks are the vendors or providers of services.<\/p>\n<p>And don\u2019t believe for a second that the Apple-Goldman Sachs blowup casts a negative light on the BaaS space.<\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/ronshevlin\/2023\/12\/04\/2024-the-beginning-of-the-end-of-bank-fintech-partnerships\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>OBSERVATIONS FROM THE FINTECH SNARK TANK Prediction: By the end of this decade, bank-fintech partnerships will be a thing of the past. This prediction flies in the face of recent industry trends. Fintech partnerships have been an important objective for banks for the past few years. Cornerstone Advisors\u2019 2023 What\u2019s Going On in Banking study found that 70% of banks said partnerships were important to their 2023 business strategies, up from nearly two-thirds in 2022. Bank-fintech partnerships have become inevitable in the eyes of some industry observers. According to a Knowledge@Wharton article titled Why Partnerships Are the Future for Fintech:<\/p>\n","protected":false},"author":1,"featured_media":11084,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[41],"tags":[],"class_list":["post-11083","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tech"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Beginning Of The End Of Bank-Fintech \u2018Partnerships\u2019 | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"OBSERVATIONS FROM THE FINTECH SNARK TANK Prediction: By the end of this decade, bank-fintech partnerships will be a thing of the past. 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