In recent years, the traditional banking sector has faced significant competition from digital alternatives such as banking as a service (BaaS) and embedded finance. According to a survey conducted by Economist Impact, over half of C-suite banking executives are aware and wary of this increased competition. However, in a new report by Cornerstone Advisors, titled The State of the Union in Bank-Fintech Partnerships, nearly nine in 10 financial institutions said they consider fintech partnerships to be important to their business, which is up from 49% in 2019.
This is why instead of building their own virtual platforms to cater to customers’ increasingly digital appetites, most banks turn to fintech partnerships to provide innovative financial tools to their customers while still maintaining the established trust of a traditional bank. Let’s explore why many financial institutions (FIs) turn to fintechs instead of building these offerings out in-house.
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Benefits of a Fintech Partnership
Though fintechs were once seen as a direct competitor to traditional FIs, many banking leaders now realize partnerships with fintechs offer mutual benefits. In fact, another study done by Cornerstone Advisors, found 70% of financial institutions agreed that fintech partnerships will be important to their future as a way to improve their services. Fintechs specialize in developing the innovative financial tools that modern customers demand. A partnership allows banks to offer those tools, such as credit score solutions and personalized recommendations, without having to build them in-house, saving the FI both time and money.
Meanwhile, fintechs can leverage the existing infrastructure, trust and customer base of traditional FIs to scale their operations. The best partnerships will allow both the bank and the fintech to adapt as the market changes and the relationship progresses — in other words, it’s a win-win scenario.
Fintech Partnerships Are on the Rise
The fintech industry is growing rapidly. The space is on track to reach a nearly $700 billion valuation by 2030, and the smartest leaders will take advantage of fintech success through partnerships now rather than later. According to recent Economist Impact research, 48% of banks have already partnered with a fintech in the last few years, and that number is expected to continue to rise into 2023.
Many FIs have already announced high-profile partnerships with fintechs, including Co-op Solutions.
To offer its customers forward-thinking financial solutions, Co-Op Solutions started a fintech partnership program that aims to “connect pre-vetted third-party sellers with motivated credit union buyers.” These third parties offer industry-leading technologies that Co-Op Solutions cannot provide in-house but that can help credit unions compete in today’s ultra-competitive environment.
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Choosing the Right Fintech Partner
In a world where digital-first banking options are becoming table stakes, an institution’s digital strategy is crucial. And ultimately, the quality of an FI’s fintech partner can determine the success of their online presence. Institutions looking to attract users and increase consumer satisfaction will look for fintech partners that align with their goals and values. For example, if a FI wants to help its customers improve their financial literacy, it should seek out a fintech partner that offers educational tools for financial awareness. This alignment builds trust between the FI and the fintech, which is foundational for a truly symbiotic business relationship.
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Beyond goals and values alignment, institutions should consider factors like innovation, pricing, reliability and integration. Additionally, performing thorough due diligence will ensure the fintech partnership will be successful. By taking all these elements into consideration, leaders can choose a fintech partner that will help them meet their digital goals and provide value to their customers.
Partnerships between fintechs and traditional FIs are advantageous not only for both businesses, but for customers as well. FIs that use technology to best serve their customers will cultivate stronger, more loyal relationships while helping drive revenue and growth for their institution.
