Let’s dance – The 3-steps for financial institution and fintech collaboration
So you work at a Financial Institution and you are tired of being called a dinosaur, right? Don’t worry, we understand! Being innovative isn’t easy when there are billions of dollars in fines being thrown around every year from regulators. A huge success gets you a pat on the back, but any failure could lead to huge fines or even the pink slip. The key to innovation for financial institutions (FI) is choosing the right startup companies that fit your FI’s needs. These are the 3 steps to do just that:
- Determine your Goals
Innovation for the sake of innovation is never a good idea (shoe umbrellas anybody?). Instead, seek to use innovation as the solution to the many needs that your FI has been struggling with. Look down your list of needs and start your research from there. If you have had issues with engaging millennials or increasing long-term revenue from low-value account holders, look to Monotto. Have a slow and outdated underwriting platform? Check out Akouba. If you find regulatory reporting to be a pain, Hexanika can help. Whatever struggles your FI has had, chances are high that a startup company has seen that struggle and created a solution.
- Find the Right Fit
It isn’t a question that working with startups can be on the risky side. However, this doesn’t mean that you should keep from using them. It just means that you need to choose the best companies in order to decrease the risk. In fact, there are many groups that are doing the research for you to determine which companies are FI friendly and capable of supporting your needs. Any company that has the gold seal from ABA or is a part of the FinXTech ecosystem is worth considering. Additionally, making sure that the startup can work with your technology is a must. Depending on the type of technology, it is always a wise decision to check with your core provider or mobile technology provider to make sure the relationship can happen.
- Review and Act
Once you have gone through the due diligence process and begin to work with a startup company, it is then imperative that you review how well the new product is doing. You can prepare for this from the start by making the expected outcomes very clear. An example would be “We expect your product to decrease our regulatory fines by 25% this year”. This can help both sides understand what is expected. Assign someone to review the relationship to be sure that the relationship is working as planned. It is also in your interest to be on the lookout for when a product has benefitted your FI in ways that weren’t expected. You may find that regulatory fines were only decreased by 20%, but you were also able to cut labor expenses in half. Ultimately, you need to act based on what you see in your review. If the product doesn’t perform even close to what you expected, attempt to find why that is. If you are unable to remedy the situation, cut the product. If your partnership has performed way above and beyond what you expected, ACT! Increase your usage of the product or have your parent company invest in the startup. Great innovation should always be celebrated and supported.
When you are open to innovation, not only will it help you solve the products you are currently facing, you will also get to have a say in the next line of banking technology. Consider the high focus being put on APIs, Artificial Intelligence (AI), and scaling technology. The financial institutions that are on the frontlines of this innovation will have a huge advantage. In the long run, FIs that innovate correctly will win, and FIs that refuse to innovate or do it incorrectly will fail. Those that actively seek it and become a part of the startup ecosystem will be able to find the best companies that will fulfill their needs and increase their profits. So, the question is, what startups will you be working with this year?