A framework to guide fintech partner opportunities

Highly targeted technology companies are scrambling the evolutionary order in financial services much like the asteroid that smashed into the Yucatan Peninsula 65 million years ago. The impact of digital technology is creating a new climate in financial services favorable to those who can rapidly sense the direction of the market and adapt to new trends. And those who can’t are consigned to suffer a fate similar to that of the dinosaurs.

The emergence of fintechs is a predictable result of a dynamic market that is evolving rapidly and rewards agility. The fast-moving, unencumbered startups offer institutions the kind of innovation they find hard to spark internally. Fintechs offer smart solutions that can help banks operate more efficiently and at a lower cost, and they serve markets in radically new ways that sometimes turn the idea of banking on its head.

In this period of rapid reinvention, new startups appear weekly — if not sometimes daily — addressing everything from blockchain and platforms to apps and APIs. Some fintechs appear poised to take market share from existing firms with disruptive new offerings, while other startups are more interested in supplying enabling solutions to existing banks. Others don’t care. They’ll take business wherever they can find it.

It’s this kind of environment that makes working with fintechs both an opportunity and a risk. If a bank makes a major investment, will that new startup survive to see the launch of a finished product? Or will its technology fizzle out, leaving the institution with nothing to show for its time and money? Will a newer player with better options show up in the market tomorrow?

Moreover, is the institution ready to make risky, large investments in technology? Financial institutions have always leaned forward into new technologies, but after decades of piling on new layers of equipment and code, many find themselves enmeshed in legacy solutions that cannot be easily unwound without massive expense and operational risk. Today’s rapidly escalating regulatory environment has further complicated matters by requiring institutions to spend time and money to adapt systems to meet new compliance and reporting requirements.

Large firms also seem to have difficulty developing a unifying vision in the digital era. Many feel they have their hands full just keeping existing systems running and complying with regulations. But the geological record and what happened after the asteroid crashed remind us that adaptation is essential to survival. The ability to successfully partner with fintechs represents an evolutionary path forward for financial institutions. The framework described in this paper — based on an in-depth study of 70 fintechs — can help you make the right choices.