Partnering with a fintech company can reward your financial institution with innovations that enhance the customer experience, make your operations more efficient, and bring in new customers and markets. But is your FI ready for partnering?
For over a decade, Beyond the Arc has been involved in the forefront of fintech innovation. We’ve seen what makes a successful partnership, and developed a strategy to assess readiness that we call the 5 R’s. Consider each step as you assess your institution’s readiness to pursue a new technology solution and fintech partnership.
What are the 5 R’s?
The 5 R’s are five factors that are often critical to an institution’s success with fintech partnering. They give you important elements to consider, in a framework that’s easy to remember and describe. In this way, you can use the 5-R’s to engage others and build buy-in as you embark on the fintech journey.
Let’s take a look at each “R” – what it means and related assessment questions.
1. Right strategy
We’re in a new age of banking that’s evolving rapidly with digital innovation. But fintech is not a technology project. It’s about re-thinking the way you serve customers; what the customer experience should look and feel like through key interactions with your bank or credit union.
Before you begin to explore a new technology, the first step is to clarify what problem you’re trying to solve. Start by selecting a major pain point or business opportunity. Examples include:
Meet an unmet customer need (e.g., as revealed by your Voice of the Customer program)
Deliver a better customer experience with enhanced security, speed or convenience
Add value through advice or planning tools
Increase personalization using customer and business data and applying advanced analytics
Solve an industry-wide challenge, such as security breaches
2. Right business case – Why you should pursue this solution
Once you have the right strategy, your next step is to determine what you want from the new technology. Is it worthwhile in terms of fit, process and people? Here’s what we mean:
Fit – does the fintech solution fit with:
The problem or opportunity?
Provide an advantage to you (e.g., making or saving money)?
Process – does it:
Smoothly integrate with your existing processes and technology stack?
Support the expected volume of use? Will it scale if volume increases dramatically?
Do you need to modify your existing frameworks for risk and compliance?
People – do you have:
Specialized expertise to use the proposed solution?
Staff who can troubleshoot and help address any problems?
Leadership who will support you in thinking and working differently?
3. Right solution – How you should pursue the opportunity
Given your budget, operations, and any system constraints, does the new technology have the potential to provide the right solution?
Consider a range of elements, including:
Total cost of ownership
E.g., if you buy a new solution that doesn’t run well on your legacy system, you’ll have to upgrade your hardware
Build vs. buy
If you’re considering building the solution, does your in-house team have the necessary skill?
If they do, how long will it take them to build it and are they able to get customer insights to guide the process?
One-time and annual costs
One-time costs – e.g., upfront software license
Annual costs – e.g., annual maintenance contract for system
Pricing per user vs. monthly subscription
There are many different models – know which one each vendor is using when making comparisons
Proprietary software vs. free/low-cost open source alternative
With open source software, will users get the support they need (e.g., will they need to spend time searching community forums)?
Status of your IT governance for cloud, mobile, and other new technologies
Future upgrades – will you need to pay for these, and if so, how much? What about security patches and other fixes?
4. Right support
Your next step is to determine if you have the right support to move forward:
Outside experts – you may need their help to identify and evaluate new technologies
Leadership – Executive Sponsor (e.g. champion for change who helps drive vision, budget, etc.)
You’ll also need to assess if your organization has skill gaps, such as:
Business model development – have you identified new ways to make money?
Acquiring customers – does the solution apply to new segments not in your existing customer base?
IT skills – do you need expertise in working with APIs and open systems?
Data science and machine learning – how will you generate insights you can act on?
5. Right timing
Even if the previous 4-R’s indicate your new solution is a “go,” you’ll also need to consider other priorities at your institution. Is this the right timing for a new technology? A new solution may require change management strategies and communications. Here are some things to consider:
How much change are employees experiencing already?
Will your people have the capacity to deal with changes resulting from this fintech solution?
What training will employees need to help ensure a smooth transition?
How will you follow-up with internal communications to answer questions and build momentum?
Fintech partnering – Ready or Not?
“Banks and FinTech companies partnering up yields the best from both worlds — boosting the industry with new innovative services from a trusted institutional partner. Each side directly benefits in carving a new niche AND gaining a wider reach of clientele — delivering advantages of cutting costs, increasing revenue, and enhancing customer satisfaction.”1
Once you’ve completed your 5-R assessment, collaborate with your colleagues about the information you’ve gathered. Have an open conversation about the pros and cons of the fintech solution you’re considering. Then you can decide if you are ready to pursue the solution through a fintech partnership.
If you’re not ready now, you may be ready in the future – especially with all you’ve learned through the 5-R process.