We returned from Davos earlier this year with one clear takeaway: with one clear takeaway: partnerships will be the name of the game in our industry going forward. At the intersection of technology and banking practices lies an opportunity for dynamic change. Improving the customer experience is at the very heart of this change.
As technology-based companies have entered the financial services industry, traditional banks have seen their market encroached upon as more nimble and flexible competitors chip away at the consumer and business customer base. However, what started off as a threat to the industry has gradually morphed into an opportunity to collaborate. In short, many have adopted a “if you can’t beat ‘em, join ‘em” attitude.
This trend is borne out in statistics that show banks and FinTechs are increasingly partnering for success. A Business Insider Intelligence report in November 2016 found that 87 percent of financial services providers in the UK that have partnered with third-party providers have been able to cut costs. And the same study found that 54 percent of these partnerships increased their revenue.
As banks explore opportunities to partner with FinTechs, the key question becomes: what should they look for in selecting the right third-party provider?
First and Foremost: Improving the Customer Experience
Corporates today face a real challenge in managing business-to-business (B2B) payments. Treasury departments often find themselves manually solving accounts receivable reconciliation problems around purchase orders, invoices, and payments with suppliers due to a lack of vital payment data. Bulk invoice payments, discounts, deductions, and the limitations of interbank payment systems to carry adequate remittance information make receivables reconciliation a time consuming, costly and risk-filled problem.
At the heart of this challenge is the fact that critically important data exists in buyers’ enterprise resource planning (ERP) systems, but that data simply doesn’t make it to suppliers. To address this problem, banks can partner with a third-party provider to harvest detailed invoice information and combine it with data from financing or dynamic discounting activity to strengthen business relationships and reinforce the bank’s critical role in the process. And most importantly, banks can gain an opportunity to bring greater value to the client relationship, while improving the overall customer experience.
What Banks Should Look For in a FinTech
Most banks have made significant investments in technology over the years in order to meet client needs, but the breakneck pace of change in today’s rapidly evolving digital world has made it difficult for financial services organizations to keep up with highly agile FinTechs, who were literally born to innovate quickly. Many existing technology relationships held by banks are with vendors serving in more of an outsourced capacity.
As banks consider partnering with FinTechs to fill product gaps, it is advisable to carefully evaluate such partners, taking into consideration the provider’s focus and business objectives. In order to align both organizations, it’s important to consider the following nine factors:
- Banks should look at their own product gaps and work with a FinTech to leverage innovative solutions to fulfill specific customer needs – strengthening the bank’s value proposition as a trusted partner.
- FinTechs should display an in-depth understanding of industry regulatory requirements and have rigorous compliance standards in place.
- A FinTech’s management team should have a deep skill-set and thorough understanding of corporate treasury practices.
- Banks should consider the reputation and brand value of a FinTech partner, and how such a partnership will enhance their own value with customers.
- Execution: Knowledge that a partner can deliver on time, on budget and to requirements.
- Assurance: A FinTech should be established, recognized and a credible player that can scale without any reputational risk.
- A FinTech’s technology platform should be compatible with leading ERP systems, including SAP, Oracle e-Business Suite, JD Edwards EnterpriseOne, Microsoft Dynamics, Infor, and Epicor, to name a few.
- A FinTech’s technology must demonstrate rigorous security protocols, so as to minimize risk for the bank and its customers.
- A FinTech should be fully funded, ensuring viability today and well into the future.
Matching Long-term Goals
Another key consideration banks should keep in mind while evaluating FinTechs is how well long-term goals of both organizations align. The right partner will create a symbiotic relationship that enhances the strengths of both and avoids marginalizing the bank.
A FinTech’s technology platform should allow a banking partner to create its own roadmap — maintaining as much of their treasury business in-house as desired. In this way, banks can leverage Application Programming Interface (API) technology and tap into a wealth of data that allows them to strengthen client relationships.
Perhaps René Lacerte said it best in his Forbes article “Is 2017 The Year Bank-FinTech Partnerships Hit Product/Market Fit?” :
“As the proliferation of cloud and mobile technologies advances and customer demand for better digital banking experiences grow, the way banks think about building and maintaining relationships with customers is changing. Partnering with FinTech companies to offer innovative new services — and richer user experiences — helps larger institutions re-establish what banking means for their customers, as well as positions themselves at the center of their customers’ financial universe.”
If our experiences in Davos have taught us anything, it’s that partnerships can be the key to success. Banks looking to deepen client relationships can accelerate reaching this goal by collaborating with FinTechs that share their goals. Scoring a win-win-win — for the bank’s business, for their client’s business and the FinTech’s business — is absolutely possible.
BY MARKUS RUPPRECHT
is the Founder and CEO of Traxpay. He has used his deep experience in the European and U.S. banking industry and passion for technology to innovate solutions in the B2B payments space.
BY ALAN KOENIGSBERG
Alan Koenigsberg is a strategic advisor to Traxpay. A financial services innovator and entrepreneur, he has more than 20 years of experience leading payment initiatives for banks and startups.