In a recent Fintech Insider Podcast by 11:FS, co-founder Simon Taylor hosted a discussion about partnerships across the fintech ecosystem. His four guests were; Nicole Perry, strategy director – digital business design, 11:FS, Martin Häring (CMO at Temenos), Mary Agbesanwa (Fintech Growth Lead at Seccl), and Josh Williams (Chief Banking Officer at Seattle Bank). This is a summary of the salient points of the conversation.
Taylor: So, today, we’re talking about what partnerships look like in 2022, what challenges are still to overcome, and how could partnerships look in the future?
Q: The ecosystem of solution providers seems to have really evolved?
Häring: Yes, as a platform provider, we need a vibrant developer ecosystem, and we’re doing a lot to nurture that, like running developer conferences, getting them on the platform, letting them play around with our open API. Secondly, there’s the commercial side of things where we have four categories of partners. It’s through partnerships that you scale whether you’re a bank or a software provider. So, for example, our BNPL partnership with Paypal resulted in 20 million new loan applications in the first 12 months.
Q: Are the conversations about partnerships at banks changing?
Perry: Yes, Cornerstone data indicates 9 out of 10 banks feel fintech partnerships are important. That’s up from 49% in 2019. Banks no longer view fintech as competitors because they’re being more honest about how they can’t compete on some aspects of what customers demand. And understanding that partnerships are the only way to do that.
Williams: In 2014, Seattle recognized that legacy banking technology just wasn’t open or scalable. We initially thought about different vendors, then realized we needed new technology and that the relationships were more than vendors. So we started looking more for collaborators for mission-critical strategic initiatives.
Q: How do partners educate themselves on the opportunities available? What are the conversations that keep recurring? How much do organizations struggle to find the right partners?
Agbesanwa : It could be a case of providing them with sandbox access to our environment, access to our API and documents, or having a discussion about our credibility, assuring them that we’re going to be around for a while. On the compliance and regulatory side, navigating permissions can be tough and time-consuming. So we’ve created guides for clients and partners that act as checklists of what’s needed. And creating a bank of ecosystem partners—principal firms, compliance consultants, and so on, to answer questions and deal with stuff for clients to clarify internal conversations prior to partnership talks.
Perry: Currently, banks see partnerships as a bolt-on, one bank does something, and the others rush to follow in a very market-reactive strategy. Taking time to consider their approach would create a better blended, unique offering. But institutions are slowly waking up to partnerships benefits like cost savings and so on.
Williams: Too often, there’s not a strong understanding of all factors coming in. Partnerships must balance business, regulatory, and technology factors, or you won’t get a viable solution. What does each party expect to get out of the partnership? What does success look like for you? Hard conversations must be had upfront about expectations. For example, we have very clear investment criteria for lending that must be communicated upfront.
Häring: To piggyback off what Nicole said, we’re not spending enough time doing proper due diligence and understanding what we want to push as a business model. We’re not taking enough time to invest in the people, the programs, the enablement of partnerships, the relationship building, the governance structure, and looking at whether it’s a cultural match. So many things can go wrong—relationship building is a marathon, not a sprint. So often, partnerships are tactical moves to support a particular deal or customer, but we should be thinking longer term. We like to look at the top 50 fintechs in each country because they already have good clients, maybe already have C funding, or are already unicorns. Understand their business model and markets—are they touching areas we aren’t yet? When we filter partners we look for them to bring something to the table that we don’t have, do they have access to a market we don’t want to serve, do they have special skills we lack, are they financially solid? But even if the first four work, if there isn’t a cultural fit, it will fail.
Q: So, there’s great tech, but ultimately it comes down to humans?
Perry: Absolutely, and there’s not enough empathy on either side yet, with fintechs or the banks. They need to respect and appreciate each other.
Q: Where do we need to get to with partnerships? Are they the future, or will they become obsolete? Is it realistic for incumbent financial institutions to become ecosystems, or must they always own the distribution?
Perry: We still need partnerships. Banks that don’t have partnerships will become obsolete. Institutions will increasingly be looking to horizontal and adjacent partners to create the best customer experience. For example, just consider the “home-buying experience” compared to a mortgage application.
Häring: Look at the successful software companies—they moved from products to solution providers to platform players. Banks have the same problem—how do I grow faster, rationalize my cost base, and provide the best customer experience? The trend will be for banks to become platforms; the question is whether they do it with partners.
Williams: What’s exciting for us as a bank is working with the fintechs that are already close to their customers and have unique knowledge about segments we never had access to and put together products we could never have. But less than a hundred banks globally are properly on the cloud.
Q: What one piece of advice would you give to institutions looking at partnerships?
Häring: Have a clear idea of your business model, do your due diligence, and understand partnerships take time, so don’t expect ROI in the first two years.
Agbesanwa: Apply some introspection to your digital maturity level, technical capabilities, and who you should partner with based on that.
Perry: Leave your ego at the door. You can’t do it all on your own, and you’re not going to be perfect.
Williams: Make sure any potential partner talks about how you will manage business, regulatory, and tech factors all at once. If any of these are missing, it’s not going to last.