Building the Collaboration Muscle: Optimizing the Bank / Fintech Relationship

Building the Collaboration Muscle: Optimizing the Bank / Fintech Relationship

At Celent we’ve long said that banks must become better at partnering. And Fintechs have come around to the realization that it’s going to be the rare beast that can compete head-on with incumbent financial institutions – most will fare better by figuring a way to cooperate with them instead.

Eastern Bank, Celent’s 2016 Model Bank of the Year, took this idea one step farther by building Eastern Labs within the bank – an in-house Fintech. While most institutions won’t be able to replicate this (it’s really hard!), there are nevertheless some lessons for banks as they consider best how to engage with smaller, nimbler firms.  The diagram below shows the complementary strengths and weaknesses that banks and fintechs bring to a joint endeavor.

1603Master Slides for Eastern Model Bank Final_009

When they get together, some weaknesses of fintechs are mitigated (e.g., they now have access to data and a brand), while many of the disadvantages of a bank persist (e.g., slowness and risk aversion). Additionally, new complications arise: goals diverge, information may not be completely shared, the cultures are wildly different, and handoffs can be agonizingly slow.

So what are the lessons when a financial institution engages with a fintech? We’d suggest concentrating on four key challenges.

  • Focus on individual goals to ensure that they’re compatible, even though they’ll be different
  • Be as transparent as possible and build that transparency into processes from the beginning
  • Recognize cultural differences and address them at the outset; be realistic about the challenges
  • Set expectations about achievable timelines

Although other complications will undoubtedly arise, partnering is a muscle that banks haven’t exercised much. With practice and training, that muscle will get stronger, and with enough dedication, it will play a vital role in propelling the bank to the next level.

Dan Latimore About Dan Latimore

Daniel W. Latimore, CFA, is the Senior Vice President of Celent’s Banking practice and is based in the firm’s Boston office. With a wide range of experience in industry and as a consultant, he brings examples from outside financial services to help banks improve their customer relationships, with a particular emphasis on the importance of technology and culture.

Dan's coverage areas include the banking ecosystem, digital and omnichannel banking, and innovation. He has a passionate interest in behavioral economics and exploring why consumers and humans make the decisions they make, and what the implications are for banks.

Dan has been widely quoted in the press, including the Wall Street Journal, American Banker, Boston Globe, CNBC, and CNBC Europe. He is also a frequent speaker at industry conferences and client gatherings, having addressed audiences ranging from intimate meetings with CEOs and central banks to keynote conference speeches in more than a dozen countries.

Prior to Celent, Dan led research groups at Deloitte and IBM, worked in industry at Merrill Lynch (where he lived in New York, Tokyo and London) and Liberty Mutual, and was a consultant at McKinsey & Co.

Dan received a Masters in Public Administration from the John F. Kennedy School of Government at Harvard, and an undergraduate degree from Dartmouth College. He holds the Chartered Financial Analyst designation from the CFA institute.

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