How to increase retention and grow business with embedded fintech
Community financial institutions have found themselves at a crossroads. With account holders demanding more from technology and the proliferation of fintech options readily available, the pressure to maintain relevance and prominence in consumers’ lives is mounting. While an increasing number of consumers are embracing third-party fintechs for routine banking as well as other value-added services, how can banks and credit unions ensure customer acquisition while winning new business?
Technology plays a major role; however, the traditional one-to-one fintech partnership model is inherently broken, burdening banks with complex integrations, stretched pockets, multiple contracts and the difficult task of determining which fintechs will serve a wide majority of customers – not to mention the regulatory and compliance risk tied to it all.
In today’s rapidly evolving market, where emerging fintechs continue to attempt to disrupt existing relationships through technology, community institutions benefit from understanding the viable fintech partnership options and what the best fit is for their unique circumstances.
Evaluating all of the options
There are many paths to partnership today, like Banking as a Service (BaaS) or open banking – yet, both contain significant roadblocks. While potentially profitable, the BaaS model requires banks to put their charters on the line for fintechs. And with regulators increasingly turning their attention to BaaS relationships, an inordinate compliance strain is being put on those who pursue a BaaS route. Plus, a BaaS model often requires banks to work with a third-party BaaS provider, cutting into potential revenue.
And while open banking has sparked an important conversation around data and privacy, the movement has many challenges in execution. Perhaps most notably, open banking has pitted fintechs against financial institutions in competition for customers’ loyalty and wallet, making it more of a competition than true partnership. While BaaS and open banking have strong use cases applicable to many, these options simply won’t work for the majority of community institutions. What if there was another option where everyone could win, combining the trust and relationship-focus of community institutions with the power of modern technology?
Taking a new path forward
There is a new model emerging that allows banks to enable access to the latest technology all while remaining at the center of their customers’ financial lives, better controlling the customer experience. At the same time, fintechs are able to focus on what they do best, their unique value proposition: providing compelling digital experiences. Enter embedded fintech through a collaborative banking lens.
This infrastructure approach allows banks to embed a customer-facing app store of fintechs into their digital offering, delivering a new way to provide fintech directly to consumers in collaboration with banks and credit unions. This is accomplished through an embedded fintech platform that integrates with the core and sits in the middle, normalizing, tokenizing and anonymizing data. Banks maintain ownership and control of banking relationships, all while allowing consumers to choose from a growing marketplace of tech innovation powered by the institution. And, account holders can access new technology without fintechs receiving regulated data, solving the compliance risk for banks. For the first time, banks can allow their customers to connect to and experiment with a fintech without having to input bank login credentials.
Perhaps the best part of this model, fintechs are contractually prohibited from competing with banks; they can’t offer checking accounts, cards or loans. Instead, financial institutions become the gateway to innovative technology; the bank owns the customer relationship, can fully focus on customer experience and do so in a regulated environment, creating innovation within a trusted network. Banks’ biggest disruptors become their biggest benefactors. And, the fintechs benefit from a go-to-market strategy that immediately brings them users, reduces integration hassles and eliminates the regulatory hurdles of trying to be a bank.
Most importantly, customers win in this partnership approach. They gain access to an app store full of individualized digital solutions that can solve niche needs. The experience is made frictionless through a single sign on; there is no password hunting or reauthentication. And, this can all be done through their trusted community institution, removing the need for customers to look elsewhere for new technology or functionality. With collaborative banking, customers have unprecedented flexibility and choice, and banks can hyper-personalize experiences at scale.
Embedded fintech through a collaborative banking lens gives back control to banks, providing a competitive edge when it comes to the digital experience – which has become the litmus test for loyalty. Banks and fintechs can realistically and effectively join forces, helping community institutions retain customers, maintain ownership of banking products, and win new business, all while offering the newest, best tech. Such a strategy positions community institutions to grow market share and forge loyalty that lasts.
Landon Glenn is the CEO and co-founder of ASA. Overseeing the company vision and strategic initiatives within the organization, Landon’s primary focus is on financial empowerment, creating opportunity for all and serving the underserved.