The challenges for banks and fintechs when building a partnership

Partnerships are the buzzword of the moment – the term has become a catch-all used to describe a wide range of relationships – between banks and fintechs, fintechs and fintechs, really between any two players in the financial eco-system.

Incumbent banks have certainly adopted the term to make their arrangements with vendors sound more exciting and, in many cases, it is just being used to describe the long-standing practice of banks buying technology. However, there is more to partnerships than a change in jargon – perhaps the greatest change is that the customer will clearly see when they are interacting with a third-party product or service.

Monzo: An example of clearly signposting when third-party providers are present within  an existing offering – in this case, third-party saving solutions.

The common challenges
This is not to say that big banks can’t have partnerships like this (take Barclays and MarketInvoice as an example), but for challenger banks, partnerships are far more critical, and their customers are far more likely to experience an explicit partnership scenario. These relationships allow them to rapidly broaden their propositions in terms of functionality, services and products, and in turn widen their market impact and appeal. Without partnerships, neo-banks simply would not be able to achieve the scale they need quickly enough.

As we see it, there are three core challenges to building a partnership:

• The first is the obvious one – who do you partner with and why?
• The second, how do you get the partnership to work in the back-end?
• Finally, how is the partnership delivered and positioned to customers?

It’s important to note that it’s not necessarily the case that banks tackle these challenges in that order and that each challenge will depend on the overall approach of the bank and what the partner is offering. To give an example, when Starling Bank is looking at providers to add to its marketplace, the final question is already pretty much resolved – it is just a case of what copy is written around the product and if there will be any data pulled back into the Starling app.

Chris Ward, Mapa Research

Finding the right partner
Let’s look at the challenge of picking a partner and establishing a working relationship. Obviously, there must be a clear purpose for partnering (from being a low-cost way to add functionality to being able to offer market-beating interest rates on savings) but beyond this the single most important thing is finding an organisation with the same vision or common purpose – this is the foundation on which a mutually beneficial relationship can be developed. Afterall, the relationship needs to deliver value for the bank, the partner and the customer.

So, in a large part the key challenge is building a strong foundation on a human level at the outset; trust is critically important – the partner is going to be interacting with your customers and, if things go wrong, can damage relationships with those customers. Both parties need to be aligned on how they approach and treat customers, the depth and quality of support they offer, and how they intend to impact the market.

The number of options available to the challenger bank varies on the type of service or product they are looking to add – there are many potential partners if you are looking at know-your-client (KYC) checks, but probably only a handful if you’re looking at pension consolidation. Each brand probably has their own take on exactly how to approach this initial relationship building, but the focus clearly has to be on establishing mutual trust.

Once the decision has been made to go ahead with a partnership, the focus has to shift to the two other challenges; the backend – in terms of technology and compliance – and the front end – how the partnership will be presented to customers.

Getting the back-end foundations right
Making the partnership work on the back-end is about two things – compliance and technology. The bank must do its due diligence here and get these foundational things right. Compliance is a key issue, but in many circumstances, there is the benefit of partners being registered with local regulators or (as we have with open banking in the UK) being a licenced participant in the financial eco-system. Even where such regulation exists, there is still the need to ensure that the partnership works from a legal point of view.

On the technology side there’s the big question of how we get the bank’s technology stack working with the partner’s technology. Obviously neobanks have the distinct advantage over the incumbents here as they have been built knowing that partnerships would be a key part of their proposition. In theory then, making the tech work should be relatively straightforward, but there are always things that need optimising and adjusting. Having heard several neobanks speak to this topic recently the key in their view is simple – let the engineers on both sides do their job.

By Chris Ward, Author, Mapa Research

This article is also featured in the summer October 2019 issue of the Banking Technology magazine.

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