Strategies, Best Practices and Thought Leadership

Partnering with FinTechs

There is no denying FinTechs continue to have a significant influence on banking. So much so that rather than dismissing them, banks may consider partnering with them to, for instance, gain access to various underwriting products in a less archaic method, better and faster processing, and increased efficiency.

Pause for a minute and think: While likely to change at some point, currently, FinTechs are not burdened by the same regulatory requirements that banks are. This makes them much more nimble and able to more quickly move when it comes to innovation.

With the capabilities of these agile, tech-centric companies, financial institutions have an opportunity to strategically and competitively revamp their systems and processes. If they don’t, they risk losing market share. In fact, Accenture cites that banks could lose up to 35 percent of market share to new digital competitors by 2020.

As we approach 2020, an increasing number of institutions are shifting their perspective, recognizing the potential for collaboration with FinTech companies to improve their competitive stance within the market.

Collaborating vs. Competing

To keep pace with evolving customer expectations, bank and FinTech partnerships are becoming more common – and we can only expect that trend to continue. But the strategies for collaboration will take different forms based on the objectives each party is trying to accomplish.

For many banks, investing in a FinTech company may be the best route. For larger banks, acquiring the FinTech may make the most sense. For others, an integration partnership might work best.

But where do banks begin when it comes to partnering?

Most bankers understand the value a FinTech partnership can have, but navigating the process can be challenging – and even overwhelming. Banks will more frequently source technology services from FinTech firms to identify the solutions that can best help them become more agile and improve their performance. Similar to how banks have sourced IT services from companies like IBM, banks will begin to use this sourcing process to better understand and assess FinTech providers, helping banks identify the very best partners.

 How FinTech Partnerships Modernize the Commercial Banking Experience

In evaluating partners, one area of focus should be the commercial banking experience.

The vast majority of FinTech partnerships have focused on the retail side of banking, leaving business banking products and services stuck in the past. The problem is that business owners and commercial account holders expect the same service and technology as they do for their consumer accounts. For this reason, banks must look to improve the commercial banking experience, which can be achieved through strategic partnerships with FinTechs.

This is especially true as commercial lending experiences growth. After a brief pause at the start of the year, commercial lending activity gained traction in the second quarter of 2019, according to research from CBRE.

Financial institutions like Hawaii State FCU, Hawaii’s largest credit union lender, are experiencing this uptick. Over the past five years, the credit union has increased its membership by 34 percent, and has seen substantial growth within its commercial lending portfolio. This growth prompted Hawaii State FCU to seek out Baker Hill for its expertise in improving risk mitigation and to support rapid growth in commercial lending.

“Baker Hill is a true partner to Hawaii State FCU. Between their superior technology and exceptional support, we have continued to grow our commercial lending portfolio as demand from our membership increases,” said Carol Higa, Hawaii State FCU Executive Vice President of Lending.

Today’s commercial banking customers increasingly demand faster and simpler solutions that address their industry-specific pain points. At the same time, banks are striving to manage more commercial assets with fewer employees to reduce operational costs and drive profitability. Essentially, banks are challenged to do more with fewer resources so technologies that help address these challenges will prove valuable.

Ultimately, 2020 will see the continued rise in both retail and commercial customer expectations and banks will make more investments to meet these demands. By partnering with FinTechs rather than competing, financial institutions can gain access to the capabilities of these modern, tech companies to create greater efficiencies and competitiveness.


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Topics: Market Trends, Online Lending

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