Cooperation for mutual benefit is an increasingly popular model in financial services, especially after the Covid pandemic. With the speed of digitization increasing dramatically, banks have moved towards common strategies, rather than competing with fintech and other new age service providers. Indeed, 48 percent of banks surveyed by economist recently as part of its ‘Threat Assessment 2022’ report, said it has partnered with fintech startups for the past three years.
The goal is to stay competitive, ensure customer-centricity and financial inclusion by providing new and innovative services to customers, while leveraging the latest technologies and innovations.
These partnerships are helping banks keep pace with rapid technological change in the financial services industry and enabling them to leverage the strengths of their competitors in the credit risk and banking sectors. data platform, thereby delivering a better customer experience.
Through open banking, banks are opening their API or application programming interface, allowing third-party developers and fintechs to access customer data and create their own layer of financial services, including billing, account management and financial advice. With the democratization of data, there is a marked shift towards applying the right analytics for better insights, making this the new oil in the industry.
Furthermore, banks are creating incubators and accelerators to identify and invest in promising fintech companies, giving them access to the latest technology and services, and collaborating with other companies. startups on new products and services
All of this also resonates well with customers. In fact, customers – retail as well as corporate – are increasingly favoring banks with strong customer propositions brought about by their broad partnerships with fintech.
It is imperative that banks consider the long-term potential of these partnerships and not rush into understanding the specifics and possible challenges.
First, partnerships can be difficult to maintain and not all will be successful. Banks and other institutions will need to work closely and align with strategic goals, and there may be conflicts over data sharing, revenue sharing, and control of the customer experience. .
Additionally, banks share customer data with third-party companies, which can raise privacy and data security concerns. Banks may also face integration challenges when working with partners, as they may have different systems and processes. This can make it difficult to share data and provide common services, which can negatively impact the customer experience.
At times, strategic direction becomes messy when products and solutions are seen as processes rather than value creation tools.
Embracing cultural change and upskilling existing staff to adopt technological innovation will have to become an integral part of this journey.
And the top concern is, banks are tied to the reputation of their partners. It can also damage a bank’s reputation, making it difficult to attract and retain customers.
Lessons have been learned from unsuccessful partnerships. Banks are required to establish clear metrics to measure partnership success, such as customer engagement, revenue growth, and cost savings. Additionally, it should be considered whether the partnership can scale to meet the bank’s needs as it grows.
Banks should be prepared to be agile and adaptive to changing market conditions, while adopting ethical practices. Finally, banks should have an exit strategy in case the partnership fails or if the bank’s needs change.
The writer is Senior Director, CRISIL Market Intelligence and Analytics