Description
According to the U.S. Federal Reserve System (FRS) report “Access to Innovation through Partnerships for Community Banks”:
“Banks are increasingly partnering with financial technology (fintech) companies to gain access to innovation. When approached correctly and with appropriate safeguards, partnering with fintechs can provide banks with access to innovations that allow them to better serve their customers and implement technologies that might be too costly to develop independently.”
A recent report by Cornerstone Advisors titled “The State of Bank-Fintech Partnerships” supports the FRS’s comments. According to the report, nearly two-thirds of banks and credit unions have partnered with at least one fintech company over the past three years, and 35% have made investments in fintech. Among those that have not yet partnered or invested, 37% plan to partner in 2022, and 18% plan to invest in fintech in 2022. However, the report revealed that:
- Fintech partnerships are not meeting financial institutions’ goals. Few institutions report that their partnerships have led to significant growth in lending volumes, productivity, or increased revenue from new products and services.
- Technology integration is a major challenge in bank-fintech partnerships. Integration with core and auxiliary systems is the biggest obstacle. Many institutions cite digital banking platform integration and lack of experience with application programming interfaces (APIs) as key issues.
Banks may be looking for fintech partnerships in the wrong places. A joint report by Cornerstone Advisors and Synctera highlights a $25 billion profit opportunity for banks through offering Banking as a Service (BaaS) via third-party technology companies.
