We have the privilege of working closely with the consortium of 80 community and mid-sized banks that make up the Alloy Labs Alliance. This work generates insight into the specific needs and strategic trajectory of the most innovative banks in the industry. In turn, our venture team has curated a portfolio of fintech partners who may best enable their growth.
For bankers jumping into the middle of that beneficial cycle, it can be hard to choose which partnership to start with. This is especially so when you don’t recall ever agreeing to the first principle: that you should partner.
Let’s back up and reestablish that foundation. Before we consider who to partner with, let’s agree on why a bank should establish partnerships in the first place.
Desirability
1. Create More Value
Strategic partnerships with fintech companies enable the bank to create more value for customers. This might look like deepening your value proposition to an existing customer segment or extending your value proposition to reach a new one. Value creation is at the heart of differentiation and will give customers a reason to choose you over your competitors.
2. Learn
Your customers will react, one way or another, when presented with a new value proposition. This gives you insight into their needs and preferences. Even if a partnership ultimately doesn’t succeed, the learning gained about customer behavior gives you a leg up on the competition. Not to mention, partnering well is a muscle you can build. The more you do it, the better you become.
Viability
3. Capture More Value
As you create value for customers, you earn the right to capture value for the bank. It’s important to know what outcomes you want to achieve with a given partnership (growing deposits, increasing non-interest income, etc.) Those desired outcomes not only shape which partnership fits, but also how you productize the offering. Creating and capturing value will help the bank counteract the trend toward commoditization and the associated margin compression.
4. Do More
Collaborating with fintech partners can free up your team’s capacity, allowing them to focus on core activities while the partner creates additional value. Done right, this results in more capital, more customers, and more data, which in turn expands your operational surface area and increases opportunities for growth and innovation.
Feasibility
5. Speed Up
Fintech companies, especially early-stage ones, are designed to move faster than traditional banks. Partnering with them can act as an antidote to the methodical (slow) processes of the bank. This cultural contrast injects energy and inspiration into your organization, engaging your team in new ways. Moreover, the speed to market with a partner’s solution is likely faster than developing it in-house, ensuring the insights remain relevant.
6. Limit Risk
Partnerships enable the bank to lower the “I” in ROI. During the pilot, the partnership is tested and iterated to find product market fit. This provides the empirical evidence the bank needs to guide further investment. If we take a step back, partnering to create value for customers also minimizes the existential risks associated with disruption or commoditization.
7. Diversify
We’ve already established that partnering requires smaller investments than development. It needs to be said that no one partner is going to be a silver bullet for value creation. We believe that the best approach is to establish a diverse portfolio of partnerships. Over time, double down on the partners where the bank is capturing the most value.
Partnerships, done well, improve the desirability, viability, and feasibility of the bank's offerings. We’re bullish on the potential for symbiotic partnerships between banks and fintech companies. I suspect that this list will only get longer over time.