Fintech isn’t just about finding new ways to innovate new products and services. In many cases, its goal is improving and automating internal processes and technologies. The result is more efficient and effective processes.
Just consider the areas of risk management and compliance, often called RiskTech and RegTech. Automating risk management and compliance can introduce huge advancements in efficiency at financial institutions. These result in greater insights into risk and compliance, improved collaboration, access to expertise unavailable in-house, and a more responsive, proactive program—often with substantial cost and resource savings.
Don’t just take my word for it. The Federal Reserve 2021 Consumer Compliance Outlook’s top story addresses how technology and innovation are critical to keeping community banks—and by extension other community financial institutions—competitive. It says fintech partnerships can be highly beneficial in reaching this goal.
“The fintech partnership model is particularly important for smaller banks, which may have limited resources to develop or implement technology solutions on their own. By obtaining needed technology resources from a third party, community banks can meet their innovation needs and continue to focus on relationships with their customers and communities,” the Fed’s outlook says.
While many of these technologies are customer-facing, the Fed makes a point of highlighting “operational technology partnerships that improve a bank’s back-end operations, including partnerships that enhance the efficiency and effectiveness of the compliance and regulatory functions.”
Maximizing fintech efficiency
Operational technology partnerships with fintechs bring many benefits, they also bring numerous challenges. The key to success is developing partnerships where contributions to the effectiveness and efficiency of an institution aren’t thwarted by the accompanying challenges.
1. Set a fintech strategy that aligns with your overall strategic plan. It’s important to begin at the beginning. When it comes to your financial institution, that means your strategic plan (which is informed by your mission, vision, and values). Does your institution value efficiency? Speed? Innovation? Constant improvement? Staying the course? Simplicity?
When considering operational technology partnerships, make sure they align with the goals set for the institution. An institution that values innovation will have a different approach than one that values steady improvement.
Consider the risks of entering a fintech partnership—and how much effort it will take to mitigate them. If an activity poses is a significant risk, mitigating that risk may wipe out any efficiency gains. Assessing these risks and regularly updating them is an ongoing effort, making risk management one area that can be made more efficient through fintech partnerships.
Related: 7 Best Practices for Aligning Fintech With Your Business Strategy
2. Find the right technology partner. There are many fintech partners out there, but not every fintech partner will be right for your financial institution.
When seeking out a fintech partner to improve operational efficiency, make sure you have a clearly defined vision of what efficiency means. Does it mean being able to accomplish the same amount of work with fewer employees? More work? Improved communication and collaboration? Spending less? Making it easier to employ remote employees? Reducing the number of meetings? Eliminating unneeded products or processes?
Your FI should also have a solid grasp of the products and services it currently uses to help determine whether a vendor’s technology will be compatible with those you rely on now (or plan to use in the future). It’s a major waste to sign on a vendor if it won’t work with the systems you use or plan to use in the future.
Related: Are Vendors Your Biggest Obstacle to Fintech Adoption? It Might Not Be Their Fault
3. Vendor due diligence. Being efficient means choosing a stable vendor that regularly performs as expected. It also requires having a fintech partner that complements your institution’s strategy and risk appetite. Some financial institutions are open to start-ups while others only want vendors that are tried and true.
Vendor due diligence makes it possible to understand the risks of working with a specific fintech partner and monitor their ongoing performance. This includes financial condition, experience, business approach, internal controls, resiliency, and compliance, among others. Your financial institution needs the resources to conduct adequate vendor management and due diligence.
Vendor management can be a heavy lift—which is why it’s one of the areas that can benefit from gains in operational efficiency when automated with the help of a fintech. Deploying a fintech solution for vendor management can set the stage for expanding your FI’s vendor portfolio and building greater institutional efficiency. It’s also helpful when evaluating and managing fintech partners to provide digital banking products to consumers and small businesses.
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While fintech solutions that dazzle consumers may get the headlines, it’s the fintech journeymen—the seemingly invisible partnerships that help improve efficiency—that will wow the board, investors, and members. From risk, compliance, and vendor management to business continuity and cybersecurity, take the time to investigate the efficiencies available to your FI through fintech partnerships. The cost of ignoring these opportunities may be higher than you think.
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