Partnerships Between FinTech and Big Banks: The Lessons

Posted by Wayne Brown on 30 Mar 2016

The role of the FinTech startup is evolving in the current economic and technological climate. I recall not so long ago, banks would tell a startup company seeking a partnership to “return when you grow up.” Partnering with large global financial institutions was out of scope for startups at one time, but now, they are often invited to take a seat at the table and participate in discussions when banks seek technology solutions. What has changed?

A number of financial organizations are including technology startups in their partnership/vendor strategies. For example, MasterCard Worldwide is evolving from a marketing/branding company to a high-tech organization. The MasterCard StartPath ™ Program demonstrates their commitment to innovation through partnerships with early-stage startups to accelerate the future of eCommerce. The program continues to team the needs of startups with MasterCard to develop new products and solutions.

Citigroup recently launched a program in which a select group of FinTech startups compete to develop a specific product for the prize of becoming a Citigroup vendor. These types of programs targeting startups have become common among large organizations seeking to outsource technology and create product differentiation.

The real issue is the speed to market for product delivery. For several decades, I held various senior product management roles at global organizations. It was obvious that developing new products in-house could take years in some instances. A key challenge, within these organizations, is to win the competition for IT resources, which are shared services. The department with a big budget often wins the battle. But the challenge today is that the payment ecosystem has changed—the industry is faced with complexities around big data, Bitcoin, AliPay, faster payments, Same Day ACH, and so on. This contributes to a high level of disruption not previously seen in the payment industry. Banks cannot wait on the sidelines to see what new payment options will win the battle; they should be active participants for change.

Since identifying talent to bring in-house is no easy task, large organizations now incorporate partnerships with startups in their strategies. In 2016, we will begin to see more programs focusing on luring FinTech startups to the financial organization’s “table”. Competition will increase and venture capital investment will accelerate. Banks will need to understand that this is not a sprint-run but a marathon and continue to be cautious in aligning with partners for the long haul.

Both MasterCard and Citigroup have gained notable momentum around their partnerships with startups. These organizations have a low tolerance for risk and realize the industry is watching to see if these partnerships are successful. But there are already a number of valuable lessons here: more and more opportunities exist for the FinTech startup to make inroads in the financial payment industry through collaboration.

As a business development executive, I continue to partner with banks and FinTech companies as banks outsource technology-based products. Due diligence is an important step of the vendor introduction process. Common questions include: Who are your clients? What is your revenue over for the last three years? Who are the individuals on the management team? However, the questions will change as things continue to evolve.

I recall participating in meeting a few years back with a global bank. My client was a software company with great technology, though still in the startup phase. I felt the discussion was doomed from the start, but during the meeting, one of the senior executives told me the bank now has a strong appetite to work with startups. Although initially shocked, I soon began to expand my bank contact network.

Times are changing! How will the Bank/FinTech partnership continue to evolve? How can stakeholders participate in the change? What are the additional lessons we can learn from Citigroup and MasterCard Worldwide? Join the discussion below.

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Wayne Brown Director of Business Development Wayne develops and manages business relationship at Alacriti. He brings over 25 years of financial services experience and worked with Metavante Corporation, Deutsche Bank, and MasterCard Worldwide before joining Alacriti. Wayne holds a B.B.A in Finance from Baruch College.

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