Simplifying Bank Tech   

Banks are increasingly turning to fintech partnerships to stay competitive and meet customer demands. In fact, a recent survey from Cornerstone Advisors found that nearly two-thirds of banks and credit unions have entered at least one fintech partnership over the past three years. According to Gartner, banks now have an average of 9.4 fintech partners, highlighting the growing trend towards a best-of-breed approach.

The intent is to gain access to cutting-edge technology and expertise that might be challenging or impossible to develop in-house. But managing numerous vendor relationships and ensuring they seamlessly integrate with each other and the bank’s existing core system can be equally challenging. In fact, thousands of bank system outages are reported each year, with many likely due to failed integrations, according to Downdetector, which collects data on outages. Additionally, a study by Aite-Novarica (now Datos) found that two-thirds of bank-fintech partnerships fall below expectations, according to the banks it surveyed, often due to integration issues.

These challenges should not steer banks away from partnering with fintechs or force them to default to less innovative solutions. Instead, it calls for a best-of-breed approach with a focus on integrations.

Navigating the Integration Maze
A best-of-breed approach allows banks to leverage specialized solutions from various fintech providers, rather than relying on a single vendor for all their technology needs. This strategy enables banks to access cutting-edge technology, enhance specific functionalities, adapt quickly to market changes and provide superior customer experience.

The success of this approach hinges on effective integration. The same Cornerstone study identified technology integration as the biggest hurdle for bank-fintech partnerships. Major challenges included integrating core, ancillary systems and digital banking platforms, along with a lack of application programming interface (API) experience.

To overcome these challenges, banks must focus on strategic planning, thorough due diligence, establishing a dedicated integration team, adopting an API-first approach and implementing continuous monitoring and optimization processes. It’s crucial for banks to have a clear vision of their technological needs and how each solution fits into their overall strategy. This involves identifying key pain points and objectives, assessing current systems and capabilities and prioritizing integration projects.

One critical aspect of successful integration is having a dedicated architect or project lead within the bank who understands the intricacies of the existing systems and can oversee the process. This person should be able to document the logic of current systems, anticipate potential impacts of changes and ensure that the new solutions align with the bank’s technology strategy.

Choosing the Right Partners
When evaluating potential fintech partners, it’s essential to consider the vendor’s experience in the banking industry, its understanding of regulatory requirements and its ability to provide ongoing support. Banks should also assess where the fintech is in its growth cycle, as this can impact the stability and longevity of the partnership.
Particularly for community banks with limited internal technical resources, it’s important to choose vendors who can provide guidance throughout the integration process and offer robust support after implementation. These vendors should be able to demonstrate a deep understanding of banking operations.

This was critical for Missouri-based First State Community Bank (FSCB), a bank that recently pursued a best-of-breed approach. “The experience and support provided by our fintech partners have been key to our success. Their expertise has helped us navigate challenges and optimize our use of the system,” according to Nikki Masters, digital channel manager at FSCB.

This approach has allowed FSCB to not only grow by more than $500 million in assets, but also set the bank up for future, sustainable growth. Masters emphasizes that “these efficiencies have allowed us to manage our expansion without a proportional increase in operational costs.” She also notes that the bank is no longer bogged down with vendor management.

The Road to Success
As the financial industry evolves, the importance of effective integration in bank-fintech partnerships will only grow. Banks that can successfully navigate the challenges of integration while leveraging the strengths of best-of-breed solutions will be well-positioned to thrive.

Developing a clear strategy for fintech partnerships, investing in the necessary resources and expertise, fostering a culture of innovation and collaboration, and remaining agile and responsive to changing market conditions are all essential steps in the process. By taking these steps, banks can simplify their tech stacks, improve operational efficiency and deliver superior customer experiences through well-integrated, best-of-breed fintech solutions.