FinTech

Frenemies: How to Build a Successful Bank/Fintech Partnership

Andrea Melville, managing director of commercialisation and propositions, Global Transaction Banking at Lloyds Bank, provides some pointers on how banks and fintechs can build mutually beneficial partnerships.

Against a backdrop of rapid, wide-ranging technological disruption, there’s been a sea change in how established banks view their relationships with fintech businesses, and a growing appetite for closer collaboration.

While in recent years banks have sometimes viewed fintechs as competitors and questioned their role in a highly regulated environment, they are now broadly recognised by financial institutions as valuable partners for the future.

In fact, the latest Lloyds Bank Financial Institutions Sentiment Survey, which gathered the opinions of more than 100 senior decision-makers across the financial services sector, found that almost half (46 per cent) expected their investment in fintech to increase over the next 12 months.

The advantages of partnerships between financial institutions and fintechs go both ways. For big banks, access to emerging technology and innovative new ways of working could help boost their competitive edge and swiftly meet changing consumer needs.

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Meanwhile, for fintechs, partnering with large financial institutions can support their own growth ambitions, opening up access to finance and a pool of potential customers that could far outstrip what they could build alone.

With these benefits in mind, some fintechs may want to explore how they can establish a relationship with a banking partner. And while there’s no sure-fire path to success, there are a few things that both parties can do to help build the foundations for an attractive, lucrative, collaboration.

Steps to success

As a first step it’s important that both bank and fintech clearly define their value proposition.

By clearly establishing the pain points and opportunities their offering addresses, fintechs can help a prospective bank partner easily identify how the fintech’s product will fit within its structure, and how the offering can benefit its customers.

Although an important element, it is advisable that fintechs don’t just emphasise their product’s technical detail, but instead highlight the wider value their partnership could bring.

Pointing out where a product could enhance their partner’s customer experience, for example, will help a bank’s procurement team clearly demonstrate internally how a fintech’s offering supports its wider customer engagement strategy.

Before entering into discussions, both banks and fintechs should evaluate what type of partnership model would work best for them. Doing so will ensure that any partnership respects the aims and processes of each organisation and can therefore be sustained over the intended timeframe.

Financial institutions should help fintechs understand some of the considerations they face, including factors such as data security and anti-money laundering measures – factors that fintechs can then consider as part of their approach.

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Above all, both parties should ensure that they’ve fostered a collaborative culture within their organisations, where employees have the time, resources and skills to work effectively with their counterparts.

At Lloyds Bank Commercial Banking, we understand the value that collaboration with fintechs can bring, and have been adapting our approach to help us improve how we collaborate with potential partners.

A recent example is our successful collaboration with Xelix – a platform that uses machine learning to enhance validation and decision-making processes within a business’ accounts payable.

Over the course of a three-month pilot, we’ve referred our corporate customers to Xelix’s platform. This has enabled them to explore the applications of the product within their own operations, and given Xelix a chance to grow by opening up additional distribution channels.

The partnership has also allowed us to explore incorporating Xelix’s platform within our own infrastructure to further our cybersecurity and fraud detection capability.

As banks and fintechs continue to innovate, the potential benefits that partnerships can bring will only become more attractive. Carefully developing a sound partnership strategy that demonstrates mutual value and accommodates each partner’s overall goals will give fintechs that are keen to collaborate the best chance of success.