The focus of financial services is shifting from the conventional standalone model to one built on strategic partnerships. Bank-fintech partnerships go beyond banking as a service—they can benefit traditional financial institutions just as much as they do fintechs.

As financial services increasingly move online, banks and credit unions will need to consider adding more digital products and services to their lists of offerings.

TYPES OF FINTECH PARTNERSHIP

Some of the most common bank-fintech partnership examples include:

Referral

A referral arrangement is similar to outsourcing in that you work with another company to fill gaps in your institution's offerings.

This is how the deal typically works:

STEP 1: Your team researches fintechs to determine which one would be the best partner.
STEP 2: You and the chosen fintech enter into a strategic partnership.
STEP 3: Your institution refers interested customers or members to your preferred fintech partner.
STEP 4: You earn a percentage of proceeds for every successful referral.

This partnership model is best for institutions that want to expand their offerings but lack the resources to do it without outside help.

Private and White-Label

While private- and white-label partnerships are similar, it's important to understand the distinction between the two: 

Private-label: Your institution creates and markets its own branded product based on a fintech company's existing technology or service offerings. Private-label solutions are exclusive to your organization, offering more customization and branding flexibility than white-label products.

White-label: Your institution purchases an existing generic solution from a fintech, which you can customize to appear as your own product. However, because the developer is likely to sell the same offering to other organizations, you're also limited in the amount of agency you have over the specifications.

In general, most private- and white-label partnerships require more internal resources from your organization than adopting a referral business model. The main benefit is that your institution can create a more seamless customer experience across all your digital touchpoints.

Hybrid

In this model, your institution and the fintech company work more closely together to create new experiences in highly personal services like account issuance and lending.

Some examples of hybrid models include:

• Direct investment
• Acquisitions
• Outsourcing
• Close collaboration

Careful background evaluations and due diligence are essential for success in this model, as both partners must fit well together to deliver value.

THE MUTUAL BENEFITS OF BANK-FINTECH PARTNERSHIPS

These points are what make a bank-fintech partnership work for both parties:

Expanded customer base
As more customers adopt digital banking services, traditional financial institutions will need to adapt to more effectively engage them. Partnering with a fintech company gives both you and your business partner access to audiences that may have been out of reach before.

More effective risk mitigation
Banks help fintechs minimize the risk of noncompliance by providing access to the backend infrastructure and regulatory controls that newer companies lack.

Enhanced reputation
Customers are more likely to return to brands they trust. If your partner has built a reputation for excellent service, you can leverage their name to create a positive association in your customers' minds.

Accelerated innovation
By sharing resources and collaborating, fintechs and banks can propel technological advancements within the financial sector to create unmatched value.

Cost savings
Partnerships allow fintechs and banks to gain access to the resources they lack without having to make additional investments.

CHALLENGES AND CONSIDERATIONS FOR SUCCESSFUL ALLIANCES

Taking a proactive approach is essential for establishing a relationship that will be profitable in the long run, as planning for obstacles will help you overcome them when they arise.

Some of the top challenges banks and fintech companies face when building partnerships include:

Regulatory compliance

The financial industry has always been subject to stringent regulations, such as PCI-DSS and the SOX Act. However, regulatory bodies are beginning to catch up to the rapidly growing fintech landscape — and we're likely to see significant change in compliance management as a result. 

Fintechs and financial institutions will need to help each other respond to these changes by sharing knowledge and technological resources.

Tech compatibility and integration

When your tech stack doesn't integrate well with your fintech partner's offerings, it's difficult to create an offering that will work well for your end users.

The best solution is to use an implementation model that enables smooth, seamless integration and data flow. For example, Array offers various deployment options to minimize friction:

• Integration: Seamlessly integrate web-based solutions into your mobile app, and choose which tools users can access to provide value they can't find anywhere else.
• Application programming interface (API): Our Reports API gives institutions full control over reporting and analytics, enabling powerful insights for better customer experiences.
• Private label: Make your new offering part of your existing digital experience with a fully customized, branded solution. You can offer this product as a free perk or upsell it to boost revenue — the choice is yours.

TIPS FOR BUILDING LASTING PARTNERSHIPS

Here are some key components of strong business partnerships between fintechs and financial institutions: 

Alignment of objectives: How does this partnership add value now and in the future? Without this internal alignment, getting buy-in from relevant stakeholders is significantly more difficult.

Full transparency and trust: You need to make sure you can count on your partner to be transparent and honest with you. Before drawing up the initial contracts, do your research and make sure your intended partner is one you can trust.

Effective communication: There should always be clear and open communication between partners to prevent minor issues from escalating into serious problems that can threaten your business. Using your partner's preferred communication channels can help ensure your messages reach them.

Continuous evaluation and adaptation: What works now might be less effective in the future. Monitoring key metrics and adjusting as needed with your partner can help you improve the chances of a lasting alliance.

WHY TRUST US

What makes the team at Array a reliable authority on the success of financial institutions? As a pioneer in embedded fintech solutions, we have experience in building partnerships with both traditional financial organizations as well as other fintechs. We strive to make the financial world more accessible to companies of all sizes and business models.

We care about effective thought leadership. Our organization is backed by some of the industry's top leaders, including NYCA, Battery, and General Catalyst.

STEP INTO THE FUTURE OF FINANCE WITH ARRAY

If you're looking for a reliable tech partner, Array is here for you. We offer a range of financial products for fintechs and financial institutions, with private-label software solutions for the ultimate in seamless customer experiences.

Contact us today for more information about driving growth with our embeddable solutions.

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