By Martijn Groot, VP Strategy, Asset Control
Partnerships between established financial services firms and new fintech companies are becoming increasingly common as banks and other financial services firms look to improve their services and battle back against increased competition from innovative new rivals in banking and investment management.
In an age where data volumes, regulatory scrutiny and, above all, consumer expectations are growing, the ability of innovative new businesses to provide a very high-quality customer service at much lower fixed cost represents a major threat to the established players. Established firms find it difficult to deliver the innovation they need to compete purely using in-house resources. They typically have a complex legacy IT landscape to support with a very crowded change agenda. They therefore increasingly look to fintech providers to help them fight back and deliver a better customer experience, improved insights and optimised business operations.
Fintech is a broad space and, within financial data management, we are primarily talking about streamlining data sourcing, mastering and integration into internal and customer workflows. This is about improving the access to data to support every other business function including customer analytics, behavioural insights, risk exposures and operational streamlining.
But, with so many fintech partners to select from, it’s easy to make the wrong choice. Here we outline some key tips financial institutions can follow to help ensure that they opt for a partner that is right for them.
The fintech space is very crowded and competitive. Given that, it is likely that many fintechs will not survive over the long-term, no matter how good their ideas are. So, while financial institutions should never be discouraged from benefitting from smart innovative advice delivered by a fintech, they should be wary of putting all their trust in a start-up organisation where they are not 100% sure of their viability and long-term sustainability as a business. In other words, they should not go into a fully-fledged partnership, if they are not sure their target partner has the necessary longevity to support them over the long-term.
Look for specialist, complementary skills
It is important when opting for a fintech partner not to go too broad-based in terms of the skill-sets they have to offer. Opt for a partner that has proven specialist skills in the required area of expertise. That would typically include specialist knowledge of industry requirements or industry models. In the world of data management that would generally include expertise in financial data products. data management and data exploration.
Ensure the fintech firm understands your business and can deliver on that understanding
Its important to ensure that any fintech partner, especially one delivering a managed services option both understands your business and will be able to translate what you want to get out of that service into meaningful KPIs and SLAs.
Make sure they don’t lock you into a proprietary approach
It is important that any proposed partner uses open source technologies. Providers using a proprietary database or proprietary languages likely require a highly specialised skillset, probably only supplied by the vendor themselves, which you may have to pay for indefinitely. Using open source databases makes it easier to get your own staff to work on the approach or hire third-party help. In addition, open source components tend to be widely supported and may be more future-proof. And as a business, you are immediately part of a wider community.
De-risking the chosen method
It makes sense to opt for a provider that combines expertise in a particular market with a robust and reliable infrastructure. In terms of managed services, it has become easier for smaller to medium-sized businesses to offer a de-risked approach because they are able to rely on the vast infrastructure resources of Oracle, Google, Amazon or AWS. Of course, alongside this there also has to be a support criteria in the service and agreed escalation levels, for example.
Other areas you can look at include: the customer product, is it properly documented? Do they have a larger installed base? Is there a user group that regularly meets? Is there a customer community? You can consult other people. What is the ecosystem in the marketplace? There may be some of your peers that use the system and you can consult them.
Today, fintech partnerships are becoming increasingly attractive to many financial services organisations for a variety of reasons discussed earlier in this article. But for firms in the financial services space, with the choice of partners wide and getting wider all the time, it can be difficult to make the right selection. Financial institutions that follow the top tips outlined above should, however, be better placed to get it right.