The Two-Way Street of Banking and FinTech Partnerships
A few years ago, FinTech firms like PayPal and PayTM were giving banks the chills. Industry experts believed that FinTech startups would disrupt the traditional banking system.
The zeitgeist has evolved; pundits now foresee a symbiotic partnership between these two players. In a global FinTech report published in 2017, PwC found that 82% of incumbent financial services firms were looking to increase their relationship with tech companies over the course of three to five years.
For a bank, collaboration with FinTech companies means access to digital accounts, easy payments and lending through gateway platforms, new banking products, and overall, more satisfied customers. But a partnership is a two-way street.
Startups must also evaluate partner banks. The arrangement needs to fit in with their strategy, and not merely provide them with a longer customer base. Everything from capabilities, possible partners, mutually-acceptable arrangements, new approaches, and making room for future negotiations, needs to be ironed out from the get-go.
Banking and FinTech partnerships also attract stricter regulatory scrutiny, making it essential for both parties to be sure that they are cutting the right deal.
AML Compliance
It is mandatory for banks to ensure that they have strong anti-money laundering (AML) compliance in place. For FinTechs exploring partnerships, they also need to anticipate and adapt to the prescribed regulatory standards.
The growing use of digital currencies also heightens risk, including that of money laundering and illegitimate transactions due to the anonymity associated with it. But FinTechs have solutions that can be leveraged to increase the efficiency of manual AML processes – whether by tracking digital data, machine learning, or blockchain technology. In cases where either party outsources their AML services, both sides need to get their due diligence right. An equal partnership, especially in terms of AML compliance can lead to a better offering.
For instance, when starting a new customer relationship, banks can depend on FinTech solutions to screen individuals. Employing machine learning techniques to connect the dots between various investment decisions can help detect patterns that may have otherwise gone unnoticed. In turn, FinTech companies can rest assured that banks are making informed decisions, which would protect them from regulatory backlash.
The partnership route is a logical way forward to effectively eliminate smaller market shares, and ultimately help all participants reap the full benefits of innovation.
