5 Ways Fintechs Can Prepare for a Bank Partnership
Bank-fintech partnerships are ready to take center stage this year. In November 2022, the United States Treasury released a report encouraging responsible bank-fintech partnerships. Global fintech company Sopra Banking Technology released a report that found that 77% of banks feel the need to collaborate with fintechs in order to meet consumer expectations. Fintech bank partnerships can help mitigate compliance risks, increase customer satisfaction, and put both firms on the path to growth.
Opportunities abound, for both fintechs and banks. That being said, legacy banks tend to have rigorous due diligence processes, and fintechs should be as prepared as possible. We talk to Treasury Prime partner Emprise Bank on the 5 things fintechs can do to prepare for a bank partnership.
1. Develop a plan to work with the bank
One of the first things a fintech needs to do is to understand the “operational processes they will have to sustain in coordination with the bank,” says Emily Reisig, SVP Innovation Development Manager at Emprise Bank. Obviously, the intent is to create a partnership, but it’s important for fintechs to have a clear idea of the role they will play in that partnership. That includes marketing, document approvals, and compliance management.
Fintechs are the first line of compliance management because they are the ones dealing directly with the end user. However, fintechs are also the ones talking to customers about financial products, which falls under bank oversight. Banks are experts in the regulatory space, so it’s important for fintechs and banks to work together to build that process, Reisig stresses.
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2. Provide a UI/UX framework
From a compliance perspective, banks need to know how and where fintechs are moving money through their products – that’s why it is especially helpful to have a UI/UX framework built out.
“We need to review the things that they built and get to understand their customer experience,” Reisig explains. “What’s their message to their customer? Do they have a preliminary marketing item so we can understand how their customers are being spoken to? Do they have any risk mitigators in place?”
Reisig adds that it doesn’t mean fintechs need to have their products set in stone. They can still experiment and make tweaks, but they should also understand that it will add time to the process. For example, if a fintech changes their ACH flow, that may trigger different authorizations required of the customer.
3. Get your financials in order
Your potential bank partner will want to conduct a thorough financial review, just like they would with any other business. They want to ensure that any fintech they work with has adequate cash flow management.
For the review, things to include are:
- Strategy objectives, both near and long-term
- Income statement
- Balance sheet
- Cash flow statement
- Accounting processes
4. Information security and vendor due diligence
Financial institutions need to evaluate third-party risk, from both their own vendors and their fintech partner’s vendors. Third-party risk is defined by the FDIC as “the potential risk that arises from financial institutions relying on outside parties to perform services or activities on their behalf.” As a result, third-party vendors are subject to the same level of scrutiny as the bank itself.
Because banks are using fintechs as an extension of their services, they need to know your critical third-party vendors and the due diligence that has been performed, says Reisig. The level of oversight a vendor requires may vary depending on the service they provide and how critical they are to operations.
Emprise Bank also expects their fintech partners to have cybersecurity insurance coverage, either prior to the partnership or added during the negotiations. Although not necessary, Reisig adds that a System and Organization Control (SOC), which is an independent assessment of risks associated with using third parties, can speed up the process. However, Reisig adds that they know some of these procedures may be in early development, and Emprise Bank is more than willing to work together with a fintech partner to develop those processes.
5. Gather your documentation
Lastly, have all these documents ready to go. The more information, the better.
Ultimately, the goal is to get a clear picture of your organization, its structure, products, policies, and processes, says Reisig. However, the point isn’t to shame a fintech for not knowing every rule and regulation. Rather, it’s to develop a deeper partnership by highlighting how banks and fintechs can help each other grow.
Fintechs and banks need each other. “There is this whole ecosystem of opportunity that still hasn’t entirely been realized – so how do we put ourselves in a position to be a part of that growth?” says Reisig. “We asked ourselves, ‘What is the future?’ And the future is in technology.”
Wondering how embedded banking could help your business? Contact Treasury Prime — we have a true multi-bank network, the deepest bank core integrations, and extensive compliance experience. Read more about our $40 million Series C Funding and why Tearsheet named us the Best Banking as a Service company for the second year in a row. Talk to the best embedded finance team in the industry.
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