Originally published in the Birmingham Business Journal by AJ O’Leary
Fintechs draw the ire of many bankers, but building better partnerships with them will be key for the future of financial institutions.
“Traditionally, banks have purchased software from a vendor,” said Kris Bishop, CEO of Fintegrate Technology. “That’s what it is —it’s not a partnership.”
Building fintech partnerships can be an effective way to get ahead and stay ahead in the rapidly changing financial services landscape. Whether it be working more closely with vendors, investing in a fintech company or even building a wholly owned subsidiary, as at least one major regional bank has done, a number of financial institutions and fintechs have found success in that arena and are blazing a path toward a stronger industry.
“Small businesses are going to continue to look for other means to acquire financial services than the traditional model,” said Tom Bell, CEO of wholly owned Synovus subsidiary Maast. “So if that’s a given, which I think it is, then small banks in Birmingham, small banks in Nashville or wherever you are — I think you need to have a strategy to address that.”
Bishop said a growing number of banks are considering the fintech they do business with as partners.
He said Fintegrate calls its clients once per quarter with the following questions: “‘What are you using spreadsheets for? What are your manual processes? Where can we help you?’—nothing about our product. I’m looking for a new product that we can helpdevelop based on our expertise,” he said.
Bishop said that process is good for both fintechs and banks and allows both parties to further streamline their operations.
“What I think would be helpful is if the fintechs would create a more active communication environment for customers and for themselves,” said Phillip Wheat, Chief Information and Operations Officer with First US Bank, which works with Fintegrate as a vendor.
Wheat said First US Bank extensively vets and re-vets its fintech vendors.
“I think the major thing I’ve seen is a lack of up-front due diligence.If you could see my inbox and my spam folder, I get hundreds of fintech emails a day sometimes,” he said.
He believes fintechs also tend to underestimate the regulatory burdens banks face.
“We’ve got a lot of hoops to jump through to create a vendor relationship,” Wheat said. “The Federal Reserve, OCC and FDIC are now looking really hard at vendor management and how this election process is done.”
As for banks, Wheat said he thinks the effort required to get new FinTech products up and running, including training and other aspects, is often underestimated.
“You’re going from a system that everybody’s been using for 15 to 20 years to one that’s new, and instead of typing, you’re clicking, and it’s just a different world that’s often underestimated cost-wise,” Wheat said. “And support, servicing, and testing, all those have costs that don’t show up on a balance sheet or an income statement. So that’s something that we look hard at.”
Wheat said a partnership with C Spire, whereby the company replaced all of First US Bank’s old network gear, has been fruitful.
“They own the gear, they lease it to us, and they manage it for us,” he said. “So I don’t have to hire three or four network techs.”
Danny Kelly, CEO of Onenonta-based Hometown bank, said both banks and fintechs need to be willing to admit what they can’t do and need to have a clear understanding of what they’re trying to achieve with a partnership. He pointed out one advantage fintech have in particular over banks. They are generally more nimble.
“We have lots of moving parts, and we have lots of people to answer to — regulators, different people,” Kelly said. “And in that environment, sometimes you’re not always on top of the latest, greatest thing to provide to your customer.”
John Smith, CEO of CFM, which acquired NXTsoft, said it’s a common pitfall for banks and fintechs to think they are creating differentiation by withholding information from one another when in reality they could both benefit by sharing more. He also said proper systems integration is key.
“What they need is this connection in the form of APIs (application programming interface) to be able to lend more effectively and onboard, get to know their clients more intimately, to solution-sell with CRM solutions, integrations in transacting and paying and, of course, everything to do with mobile and self-service. So those are all the aspects of banking that are getting a lot of attention and a lot of opportunity to transform,” Smith said.
Chris Aliotta, CEO of Quantalytix, said banks have many valid reservations about partnering with fintechs, including that their people may already be overworked, the growing burdens of compliance and that partnering with a fintech may only add more hoops to jump through in that regard.
But he said partnering with fintech startups in particular can be especially beneficial.
“I think one of the biggest benefits to partnering with a startup fintech is that you have the ability to shape their services in a way that directly is customized to what you want while reducing the internal risk and being able to get the upside and the synergies that come from it,” Aliotta said. “In some cases, good partnerships with startup fintechs result ultimately in an investment, which allows the bank to capture revenue and reduce expense, while also receiving high-end technology.”
That’s similar to the approach Synovus took with Maast.
“Synovus has been a great partner in this because we are being allowed to run as an in-house startup,” Bell said.
Bell is not a banker by trade but has always been in the tech andfintech space. He was working as a consultant for Synovus to help bring the merchant business in-house.
“Prior to 2020, Synovus had a partner in the payments space, and Synovus said, like a lot of banks, now we’re deciding to bring the merchant payments business in-house. So I worked with Synovusto to find the right partner and execute that process of bringing it in-house,” he said.
Bell then began working as a consultant with bank leadership to think through strategy for Maast, and once the enterprise began to grow legs, he joined the bank.
He said flexibility and a long-term mindset are key for partnerships like that between Synovus and Maast.
“The bank has to think somewhat like an angel investor,” Bell said.“They have to think, ‘OK, I’m going to put capital to work here. And that’s capital that I can’t put to work somewhere else. So I have to be deliberate about that decision. And I have to put capital work, but I have to think in terms of three, four, or five years before I really start to see a return on that capital investment.”