Embracing Fintech Collaboration


By Brian Scott, Chief Growth Officer, Primax

Thanks to high-technology efficiencies, fintechs are helping advance the financial services industry as a whole. The number of fintechs, a term primarily used to describe small start-up companies that develop innovative technological solutions in areas including online and mobile payments and big data, has substantially increased throughout the world. According to Statista, there were nearly 11,000 fintech startups in North and South America alone as of February 2021. And per data from CB Insights, fintech investments hit a record $91.5 billion in global funding so far this year – almost twice as much as all of 2020.

With the continued digitalization of financial services and the adoption of fintech products by the industry and consumers, many financial institutions are starting to embrace fintech collaboration. Partnerships with fintechs can have a number of benefits for both banks and their customers. Let’s look at how fintechs are advancing the financial services industry, why banks may want to consider exploring fintech partnerships, and how leveraging relationships with existing vendor partners can help.

Industry Advancement
There are three main ways banks are currently partnering with fintechs:

  • Fintech as a vendor, where a bank buys and contracts with a solution
  • Fintech as a referral partner, where a bank is paid by the fintech for marketing access to a customer base
  • Fintech as a partner, which includes deep technical integration, custom builds and co-creation. In this scenario, the bank resells the fintech solution – usually labeled as “powered by” – to its customers.

Some of the biggest buzz in the industry over the past several years has been the growth of Buy Now, Pay Later (BNPL) technology driven by fintechs such as Affirm, Afterpay and Klarna. What started out as an alternative lending option that breaks large purchases up into equal installment payments has now evolved into acceptance at any price point for some merchants.

Another area in which fintechs have seen great success is with the coveted Gen Z demographic. Fintechs have quickly and easily grabbed the attention of the youngest generation of consumers, ages 18 to 24, by building digital solutions “where they are”—on their devices. Collaboration with fintechs can play a critical role when it comes to offering innovative products that appeal to this younger target demographic of digital natives. Embracing collaboration with new fintech partners can help deliver a differentiating customer experience and attract new customers.

Benefits to Banks and Consumers
In any industry that is subject to disruption by technology, velocity is always a defining factor. Fintechs are known for excelling at the rapid development of new technology. Given their low overhead and light tech stack, fintechs are often nimble and can get to market quickly.

By design, fintechs are created to resolve a specific functionality gap in the industry or enhance upon an experience that exists today that is often too complex. They can add extraordinary value, making it easier for banks to compete with big tech by identifying and solving for these specific gaps. Fintechs’ updated technology stacks (similar to big tech) can be a true advantage for getting products to market quickly, and their R&D resources make it possible for them to offer their services at a lower cost.

Fintechs typically isolate a niche experience that needs enhancing and build a more intuitive digital solution that is easier to use. Due to fintechs often being solely focused on only one or two solutions, they can dedicate all their time and money to those particular ideas.

Fintech partnerships can give banks the ability to provide a cutting-edge solution that helps enhance the overall customer experience through the personalized and digital-only experience today’s consumers expect. Providing the most sought-out, innovative payment forms that consumers have access to through the big banks – contactless, mobile payment management, etc. – is critical for a convenience-focused community bank to have in its payment portfolio to remain competitive in the marketplace and maintain customer retention.

Third-Party Integration
While banks can “go it alone” when it comes to partnering with fintechs, there are inherent risks associated with going this route. It also requires prioritization, funding and talent to work with and integrate a fast-moving, nimble fintech.

For these reasons, many community banks are opting to connect with a fintech through one of their other vendors such as a payments processor or other tech partner. In many cases, these partners have already invested the time and resources to vet and integrate a solution. While some product customization may be limited in order to scale, the bank stands to gain valuable speed-to-market for a solution that is already integrated into its payment processing tech partner.

In addition to being a payments processing partner, Primax can also act as a conduit to facilitate fintech partnerships at scale. The company has recently been exploring partnerships with several fintechs to deliver products that create and better position customers for financial well-being and is in ongoing conversations with fintechs focused on using artificial intelligence (AI), crypto, authentication and lending solutions. Primax also uses working relationships with fintechs to help test the waters for new and fresh ideas.

Final Considerations
Fintechs are raising the bar on experience and setting the tone for consumer expectations in the financial services industry. While fintechs have helped level the playing field for community banks to compete more easily against products and experiences built and offered by larger banks and tech companies, determining whether to partner with a fintech is not a decision that should be made lightly. It is a delicate balance between working with a fintech to solve a problem or fill a technology gap and relinquishing some portion of control over the overall user experience and, potentially, the customer relationship. The customer journey should always be top-of-mind. When done right, fintech partnerships can play a role in growing the bottom line and facilitating innovation.

Brian Scott partners with industry leaders in payments and community financial institutions to create competitive payments programs. Brian helps financial institutions position themselves competitively in their own communities and maintain profitability throughout their payments programs. He spent 23 years in the highly competitive consumer payments marketplace and is a recognized leader in payments solutions and innovative technologies. He is a frequent speaker on the future of payments, new payments trends, mobile banking, alternative payments, and how new payments technologies will transform the current banking space.