Fintech partnerships are becoming a major form of innovation for financial institutions (FIs). According to a report from the Federal Reserve titled Community Bank Access to Innovation through Partnerships:
“Community banks are increasingly partnering with third-party financial technology companies (fintechs) to access innovation. Under the right circumstances and with the appropriate guardrails, partnerships with fintechs can provide community banks with this access, enabling them to better serve their customers and deploy innovations that may be too costly to develop independently.”
In our prequel report from Cornerstone Advisors titled The State of the Union in Bank-Fintech Partnerships, the team quantified the Fed’s comments. According to the report, nearly two-thirds of banks and credit unions partnered with at least one fintech in the past three years, and 35% made an investment in a fintech. Of those that haven’t partnered or invested, 37% plan to partner in 2022, and 18% expect to make an investment in a fintech in 2022. The report did uncover, however, that:
- Fintech partnerships are falling short of financial institutions’ objectives. Few FIs report that their partnership efforts have produced significant gains in loan volume or productivity, or in driving revenue from new products and services.
- Technology integration is a big challenge for bank-fintech partnerships. Integrating with the core and ancillary systems is the biggest hurdle. Many FIs cite digital banking platform integration and lack of application programming interface (API) experience as major challenges, as well.
Banks may be looking in all the wrong places for fintech partnerships, however. This report will lay out the $25 billion revenue opportunity banks have by providing banking as a service (BaaS) with the help of third-party technology companies.
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