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Banks and fintech: A partnership with a future

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Originally posted on forbes.com

Banks and fintechs are locked in competition. But as we examine the drivers, challenges and opportunities in the financial services industry, it’s increasingly evident that we should all be sitting on the same side of the table. Today, bank and fintech partnerships are leading the way to the future of financial services.

As someone who has worked in banking and now works in fintech, I’ve witnessed firsthand just how difficult it is to create change in this multifarious industry. In the world of banking, we have legacy infrastructure that predates modern technology, the regulatory environment prohibits risk at the cost of innovation, and customers are demanding more seamless and specialized experiences. From fintech’s perspective, banking infrastructure is difficult at best to tap into, regulatory compliance concerns prevent open banking from truly commandeering the industry, and the struggle for market share can kill a viable product before it has a chance to reach the right customer.

The contrast between these two perspectives is what makes partnerships so worthwhile. On the one hand, we have the dependability of established banking infrastructure, credibility with regulators and a customer base that still trusts banks; on the other, there’s the freedom to innovate and the agility to build tailored solutions for niche customer segments.

One successful example of these complementary forces coming together is Cross River Bank and one of its fintech partners, Affirm. Affirm has been making headlines for some time with its buy now, pay later (BNPL) offering, but it’s Cross River that handles the compliance and financial back end of the operation. For Cross River to build a BNPL solution of its own would have been an insurmountable challenge, from product design and development through regulatory scrutiny, and for Affirm to own the financial side of lending, accepting deposits and processing transactions, they would have had to tap into multiple third-party infrastructures and undergo the same scrutiny by regulators. Instead, Affirm is effectively a customer of Cross River Bank, which gives them the flexibility to manage their own product and customers. Meanwhile, Cross River Bank holds Affirm accountable for any financial and regulatory risk.

Partnerships like these are proving how valuable the opportunities can be. New offerings built on this model are starting to deliver on the wants and needs of customers, but in the $40 trillion payments space, this is only the tip of the iceberg. Neo-banks like Brex, Divvy and Ramp are all backed by their own issuer in the same way Cross River supports Affirm. But attracting a whole new set of customers is no easy feat. So what about customers who don’t want to leave their trusted financial institutions? I believe we as fintechs should support existing issuers and help them deliver seamless branded experiences. By designing solutions for established banks to leverage, not only do fintechs tap into their millions of existing customers, but we free ourselves up to focus on the things we do best — the technology, the products and the best possible customer experiences — rather than acquiring the customer base needed to break even.

There’s still a significant gap in the market for modern banking services designed for established banks and their existing payment products. This means there’s ample opportunity to modernize the entire financial ecosystem via collaboration between banks, networks, processors and of course, fintechs. The way I see it, there will be two types of fintechs going forward: those who attempt to rebuild our banking world from the ground up and those who digitize existing infrastructure to reach clients faster.

I believe the best way forward is for established financial institutions to partner with pure-play fintechs that are not competing with existing banks. Success is predicated on presenting a united front, with each partner doing what they do best. We work in the most heavily regulated, scrutinized and arguably most depended-on industry there is — and its future depends on our collaboration.

Blog

Banks and fintech: A partnership with a future

Author
No items found.
Virtual Card Spend
No items found.

Originally posted on forbes.com

Banks and fintechs are locked in competition. But as we examine the drivers, challenges and opportunities in the financial services industry, it’s increasingly evident that we should all be sitting on the same side of the table. Today, bank and fintech partnerships are leading the way to the future of financial services.

As someone who has worked in banking and now works in fintech, I’ve witnessed firsthand just how difficult it is to create change in this multifarious industry. In the world of banking, we have legacy infrastructure that predates modern technology, the regulatory environment prohibits risk at the cost of innovation, and customers are demanding more seamless and specialized experiences. From fintech’s perspective, banking infrastructure is difficult at best to tap into, regulatory compliance concerns prevent open banking from truly commandeering the industry, and the struggle for market share can kill a viable product before it has a chance to reach the right customer.

The contrast between these two perspectives is what makes partnerships so worthwhile. On the one hand, we have the dependability of established banking infrastructure, credibility with regulators and a customer base that still trusts banks; on the other, there’s the freedom to innovate and the agility to build tailored solutions for niche customer segments.

One successful example of these complementary forces coming together is Cross River Bank and one of its fintech partners, Affirm. Affirm has been making headlines for some time with its buy now, pay later (BNPL) offering, but it’s Cross River that handles the compliance and financial back end of the operation. For Cross River to build a BNPL solution of its own would have been an insurmountable challenge, from product design and development through regulatory scrutiny, and for Affirm to own the financial side of lending, accepting deposits and processing transactions, they would have had to tap into multiple third-party infrastructures and undergo the same scrutiny by regulators. Instead, Affirm is effectively a customer of Cross River Bank, which gives them the flexibility to manage their own product and customers. Meanwhile, Cross River Bank holds Affirm accountable for any financial and regulatory risk.

Partnerships like these are proving how valuable the opportunities can be. New offerings built on this model are starting to deliver on the wants and needs of customers, but in the $40 trillion payments space, this is only the tip of the iceberg. Neo-banks like Brex, Divvy and Ramp are all backed by their own issuer in the same way Cross River supports Affirm. But attracting a whole new set of customers is no easy feat. So what about customers who don’t want to leave their trusted financial institutions? I believe we as fintechs should support existing issuers and help them deliver seamless branded experiences. By designing solutions for established banks to leverage, not only do fintechs tap into their millions of existing customers, but we free ourselves up to focus on the things we do best — the technology, the products and the best possible customer experiences — rather than acquiring the customer base needed to break even.

There’s still a significant gap in the market for modern banking services designed for established banks and their existing payment products. This means there’s ample opportunity to modernize the entire financial ecosystem via collaboration between banks, networks, processors and of course, fintechs. The way I see it, there will be two types of fintechs going forward: those who attempt to rebuild our banking world from the ground up and those who digitize existing infrastructure to reach clients faster.

I believe the best way forward is for established financial institutions to partner with pure-play fintechs that are not competing with existing banks. Success is predicated on presenting a united front, with each partner doing what they do best. We work in the most heavily regulated, scrutinized and arguably most depended-on industry there is — and its future depends on our collaboration.

Blog

Banks and fintech: A partnership with a future

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