OBSERVATIONS FROM THE FINTECH SNARK TANK
Prediction: By the end of this decade, bank-fintech partnerships will be a thing of the past.
This prediction flies in the face of recent industry trends. Fintech partnerships have been an important objective for banks for the past few years. Cornerstone Advisors’ 2023 What’s Going On in Banking study found that 70% of banks said partnerships were important to their 2023 business strategies, up from nearly two-thirds in 2022.
Bank-fintech partnerships have become inevitable in the eyes of some industry observers. According to a Knowledge@Wharton article titled Why Partnerships Are the Future for Fintech:
“As the finance industry grapples with what the next generation of banks and payment systems will look like, it’s clear that partnerships are a linchpin for riding the wave of change successfully.”
What are banks trying to accomplish with fintech partnerships?
It’s more than just providing banking as a service (BaaS) services to fintechs. In Cornerstone’s study, 40% of banks cited improving lending productivity as an important fintech partnership objective, 36% mentioned growing deposit volume, and 31% listed increasing loan volume.
The results from fintech partnerships have been less than stellar, however. Just one in three banks have seen a 5% or more increase in loan volume from partnerships, and half as many have realized at least a 5% gain in non-interest income.
Why Bank-Fintech Partnerships Fall Short
There’s no doubt that banks face technology-related issues—like integrating to core, ancillary, and digital banking systems, as well as a lack of API experience—when executing fintech partnerships. There are other contributing factors, however, like:
- Insufficient personnel. Among banks with less than $100 billion in assets, half have no personnel dedicated to financial partnerships, and those that have them just 2.5 FTEs. How many partnerships can a bank identify, vet, negotiate,…
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