By W.B. King
Fintechs came into existence as digital entities whereas the majority of banks and credit unions were formed in an analog state. How the latter is partnering with the former was an interesting conversation that transpired during a “power panel” at FinovateFall 2022, which took place Sept. 12-14 at The New York Marriot Marquis in Times Square.
Moderator Alexandra Genovese, assistant vice president (AVP) strategic partnership development lead at Citi, began the discussion noting that fintech and banking partnerships are an “important strategy” and “useful tool” for developing products and services for clients.
She queried the panel, which consisted of Samuel Palmer, head of Digital Wealth Planning and Advice at J.P. Morgan Wealth Management, Wenni Wu, chief growth officer at Piermont Bank and Audrey Miller partner at Tapestry VC, about some of the immediate benefits of fintechs partnership and how it informs respective strategies.
Miller noted that fintech and banking partnerships date back to when Visa and MasterCard entered the space, so the concept isn’t a new one, but rather decades old.
“What’s really interesting now is we are in an environment that has so much technological innovation that is surpassing regulatory velocity and speed of change,” Miller said. “The difference now is the scrutiny needed to see what these partnerships look like — what makes sense and what doesn’t.”
Partnerships that Accelerate Solutions
What makes sense for the New York City -based Piermont Bank, a fully digital commercial bank that launched in 2019, are fintechs addressing the B2B commercial banking market.
“A couple of years ago we were very inspired with what fintech has done to consumer banking and we think the innovation in commercial banking is long overdue,” said Wu.
“We are trying to focus on creating a different kind of experience and I think that is where the fintech partnership really has been helpful to us — building a more secure commercial banking experience for our customers and clients,” Wu added.
Palmer and his team at J.P Morgan are “very inspired” with the fintech movement, noting that the firm is continually on the lookout for mutually beneficial partnerships.
“Fintechs are at the forefront of design and innovation,” said Palmer. “Our cooperation ranges from partnerships to bringing some firms on board.”
Palmer noted that while there might be tensions “implied” between big banks and fintechs, at the end of the day “we are serving the same needs, even though we are attacking it from a different place.”
J.P. Morgan Wealth Management partners with fintechs that “help accelerate the solutions we want to bring to the job at hand,” he said. “Since we are such a large firm, we focus on partnerships that accelerate the portion of value chain we are building rather that something that is core to our business, which we tend to build ourselves.”
From an investment perspective, Miller said fintechs seeking partnerships with FIs can be a daunting task.
“When a fintech approaches a bank, we make sure they know who the right people are. The people who are focusing on the same problems they [fintechs] are providing solutions for,” Miller said.
As a venture capitalist, she added that a funding priority is always vetting a business plan that has all costs “fully baked in,” including those related to regulatory and compliance.
Cutting Through the Noise
Genovese asked the panel: How do financial institutions seeking fintech partnerships “cut through the noise” for projects being prioritized.
Palmer responded that in some cases fintechs can be too “tech driven” and that the focus should always be on how the technology is “solving the problem of the client” and is on “our priority agenda.” Scale, he added, is also an important factor.
“Scale is very different from the perspective of a small firm opposed to a bank where we have 60 million digital clients that we are trying to serve,” Palmer said. “So, as you [fintech] are trying to build your company, think: How it is going to scale when we load it up with 60, 30, 40 million clients? — this is very important and critical to us.”
Another leading concern for Palmer is an issue Miller raised: compliance.
“We are in the business of risk management. We are managing our clients’ money and it is important to us to do it in a risk-conscious way,” he said. “So when we evaluate fintechs and partnerships, we want to make sure that compliance and risk management is something that is baked in from the very beginning in the way the product, technology and service has been scripted versus having an external compliance consultant that said ‘everything is fine.’”
Wu agreed explaining that compliance is the leading issue when a fintech partnership is considered, but added that compliance shouldn’t be viewed as a burden.
“Banking is a people business,” Wu said. “For us as a smaller bank, we think how do we grow together with our partners?”
The concept of fintechs growing with FI partners is critical, Palmer agreed.
“For fintechs and smaller firms approaching [us], partnerships takes time to build and it isn’t immediate,” he said. “Growing with the firm you want to partner with is something that is very healthy from both sides.”
Business models, Wu noted, especially in early stage growth, requires determining what the best use cases are for that period of time, while also having foresight.
“A big part of a partnership [for us] is how do we help each other find a use case that can be successful,” Wu said. “How do we find the right value proposition to truly make a difference?”
With the understanding that fintech growth, especially for startups, can be a long cycle, Genovese asked Miller what advice she has for those fintechs looking to partner with financial institutions, some as large as J.P, Morgan — how do they get to the finish line?
“This is actually extremely relevant and is something I talk a lot about with portfolio companies,” Miller said. “When you [fintech] are approached by a big bank, it is really easy to scrap your entire product roadmap to meet the needs of one bank, which may seem like the right decision, but that could derail your progress long term.”
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