As banks explore ways to expand their products and services, many are choosing to partner with fintech companies to enhance their offerings. These partnerships are valuable opportunities for a bank that otherwise would not have the resources to develop the technology or expertise in-house to meet customer demand.
However, banks need to be cautious when partnering with fintech companies — they are subcontracting critical services and functions to a third-party provider. They should “dig in” when assessing their fintech partners to reduce the regulatory, operational and reputational risk exposure to the bank. There are a few things banks should consider to ensure they are partnering with third party that is safe and reputable to provide downstream services to their customers.
1. Look for fintech companies that have strong expertise and experience in complying with applicable banking regulations.
- Consider the banking regulations that apply to support the product the fintech offers, and ask the provider how they meet these compliance standards.
- Ask about the fintech’s policies, procedures, training and internal control that satisfy any legal and regulatory requirements.
- Ensure contract terms clearly define legal and compliance duties, particularly for reporting, data privacy, customer complaints and recordkeeping requirements.
2. Data and cybersecurity should be a top priority.
- Assess your provider’s information security controls to ensure they meet the bank’s standards.
- Review the fintech’s policies and procedures to evaluate their incident management and response practices, compliance with applicable privacy laws and regulations and training requirements for staff.
3. Engage with fintechs that have customer focus in mind — even when the bank maintains the direct interaction with its customers.
- Look for systems and providers that make recommendations for required agreements and disclosures for application use.
- Select firms that can provide white-labeled services, allowing bank customer to use the product directly.
- Work with fintechs that are open to tailoring and enhancing the end-user customer experience to further the continuity of the bank/customer relationship.
4. Look for a fintech that employs strong technology professionals who can provide a smooth integration process that allows information to easily flow into the bank’s systems and processes.
- Using a company that employs talented technology staff can save time and money when solving technology issues or developing operational efficiencies.
5. Make sure your fintech has reliable operations with minimal risk of disruption.
- Review your provider’s business continuity and disaster recovery plans to make sure there are appropriate incident response measures.
- Make sure the provider’s service level agreements meet the needs of your banking operations; if you are providing a 24-hour service, make sure your fintech also supports those same hours.
- Require insurance coverage from your provider, so the bank is covered if a serious incident occurs.
Establishing a relationship with a fintech can provide a bank with a faster go-to-market strategy for new product offerings while delivering a customer experience that would be challenging for a bank to recreate. However, the responsibility of choosing a reputable tech firm should not be taken lightly. By taking some of these factors into consideration, banks can continue to follow sound banking practices while providing a great customer experience and demonstrating a commitment to innovation.