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PA IN THE MEDIA

Banks and fintech startups still need to learn how to cooperate

This article was first published in Børsen

Imagine a world where a company from the established financial sector can use the entire ecosystem of fintech startups as their personal R&D department. Anyone who breaks the code to quickly and efficiently source the latest knowledge, resources and technology through partnerships can create an unmistakable competitive advantage.

We have looked at a number of partnerships in the financial sector, and we clearly see three phases that categorise most fintech partnerships. By being aware of the phases, it’s much  easier for organisations to focus on potential pitfalls and see how to correct  collaborations for the benefit of both parties.

In recent years, there has been an increasing focus on partnerships within the financial sector. Both fintech startups and large financial institutions have quietly been able to gain benefits from each other. Previously, we have seen a tendency towards a more Darwinian approach to innovation in the financial sector, where it was about being disrupted or getting disrupted. Today, however, we see a shift towards the fact that we can disrupt the world together.

In our new report, we focus on just that. The report confirms that there is a mutual appetite for partnerships in the financial sector. The study is based on interviews with both fintech startups and the largest players in the Danish financial sector, and therefore informs views and experiences from all sides. The report confirms what we have seen throughout 2018, that a major player has identified a market they have had difficulty penetrating in one way or another, and through a partnership, they have quickly, effectively and cheaply entered the market or acquired a new technology.

However, it is by no means as easy as it sounds. Many companies have, over the last few years, tried partnerships in the financial sector and failed. One of the more obvious reasons companies fail is the large cultural differences that exist between often very young people working in a fintech startup, and the employees working in established companies, who often have many years of experience and are accustomed to specific workflows. These partnerships often fail because they enter into partnerships just to do it, without really knowing what to look for. In other words, the hypothesis about partnerships can kill the partnership and both parties will forget to focus on an end-to-end plan.

In most of the partnerships, there are three phases that you have to go through:

1. Identification phase
2. Agreement Phase
3. Post-honeymoon phase.

Identification phase

The first phase, the identification phase, is about clarifying what you’re looking for in a partner and then identify the right partner. Here we recommend that you choose a top-down approach so that you don’t  shop blindly but can search purposefully for what’s missing. In this phase, iit’s important to focus on creating the correct foundation by being aware of cultural differences, as well as differences in the level of knowledge. For example, there may be a lack of regulatory knowledge at a fintech startup. However, this knowledge can often be found directly with the established financial institution. It’s also important to take one step back and consider whether partnership is the solution at all - whether it’s easier to access what you seek by building yourself, buying it or through a partnership.

Agreement phase

The second phase, the agreement phase, points to an overlooked problem, namely that there is often great focus at the time right up to signing the contract. Here it’s important to make sure you sign for the right reasons, and not just to enter into a partnership, "because everyone does it". In that case, the partnership is almost doomed to fail. Here, many fintech startups also run their faces against the wall when they encounter large procurement departments that do not necessarily have pace as their KPI. If things take time, a startup risks running out of capital, so efficiency is essential.

Post-honeymoon phase

The third phase, which many people forget, is the famous post-honeymoon phase. Here it’s important to establish clear performance indicators for the partnership so that you have the opportunity to follow up and celebrate milestones. It’s also important to have the partnership rooted in the right place in the established company so that the cooperation does not fall to the floor. Fintech startups mention that there are often low-practice problems. For example, if they’ve not been told who from their established partner they should email or call. Unfortunately, there is often a tendency that focus on the partnership disappears in the final phase here.

It is, of course, important that you keep focus through all three phases, and in each phase do the basic work needed, so that you are prepared for the next phase. If the first phase does not provide for the necessary match of expectation and creates a common goal, the two sides risk working away from each other in the final phase. Established companies will often focus on creating profit, where as fintechs may have a tendency to focus only on growth. Here it is important to create common goals.

The financial sector cannot avoid the changes that hit them these days, and that is why it is a good idea to start capitalising on the fintech wave, which is not going to stop in the near future. Because there is no doubt that it’s through fintech partnerships that established financial institutions can take their innovation and business development to new heights.

Explore how incumbent financial institutions and fintechs can forge succesful partnerships in our latest publication Winning the future through fintech partnerships

Find out more

Contact the author

PA Consulting in Denmark

Anders Rom

Anders Rom

IT transformation expert

Frank Madsen

Frank Madsen

Implementation and transport, travel and logistics expert

Jon Plate

Jon Plate

Insights and strategy expert

Martin Tillisch

Martin Tillisch

Financial services expert

Mikkel Pødenphant

Mikkel Pødenphant

Government and public sector expert

Mitzi Geisler

Mitzi Geisler

Agile and IT transformation and life science expert

Richard Grint

Richard Grint

PA financial crime expert

Søren Knudsen

Søren Knudsen

IT transformation, digital and life sciences expert

Søren Lehn

Søren Lehn

Government and public sector expert

Tina Hjort Ejlertsen

Tina Hjort Ejlertsen

Nordic Head of Agile Transformation

Troels Gregersen

Troels Gregersen

Business design and transport, travel and logistics expert

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