Breaking Down The Three Options With Fintech

January 2nd, 2019

fintech-1-2-19.pngThere are three ways to consider expanding into new lines of business, improving operational capabilities, or tapping new markets. Should you build, buy, or partner?

Technology is disruptive, and established companies struggle with the best way to adapt to the changing trends.

Fortunately, there are options. Fintech partners, big and small, offer a variety of financial products and services utilizing the latest technology that can be white-labeled or simply acquired.

In addition, the talent pool of technologists is expanding, giving financial institutions access to the necessary skills should they choose to build internally. When determining whether to build, buy, or partner, these institutions must consider their core competencies and competitive advantages, as well as their culture, structure, and access to capital.

While there is no one-size-fits-all approach for financial institutions, partnering with fintechs can be most beneficial and provide needed flexibility for the long term.

Consider the choice to build. First, an institution must recruit and fill a team of product managers, engineers, and other highly skilled positions that demand significant compensation. An up-front investment must be made to support software development, testing, security and maintenance. The speed to market is typically slower if an institution chooses to build, elevating the risk the product or service will be out-positioned by the time of launch.

While true that some of the largest financial institutions have managed to develop popular new digital products and applications internally, they are the exception. Those banks also typically had the surplus capital to put to work.

The “buy” option presents challenges as well. Few credit unions and community banks have the financial clout to acquire a fintech company. Those that do will face numerous hurdles integrating the acquisition into their existing operations, technology stack and company culture.

There are certainly examples of successful fintech acquisitions by financial institutions, but unless the acquirer is prepared for a lengthy and resource-consuming process, this may not be the most viable option.

Partnering can often be the most cost-effective and efficient alternative. There is no shortage of turnkey solutions that allow community banks to automate products and services, enabling them to provide the kind of digital experience consumers have come to expect.

Partnering with a fintech also provides the financial institutions with an option to test before investing in a build or buy strategy later. For institutions seeking a stopgap solution, partnering can meet current needs and buy time to consider long term alternatives.

It’s not hyperbole to suggest the technological challenges and threats facing banks are existential. Those that do not adapt quickly face the risk of becoming irrelevant. Fortunately, whether it is build, buy, or partner, there are myriad solutions that allow institutions to provide an attractive digital experience without relinquishing their core competencies and competitive advantages.

ssuri

Samir Suri is charged with guiding the vision of LendKey’s platform and enhancing the user experience for its lending partners and borrowers. He holds a Bachelor’s degree in Economics from the University of Minnesota, Twin Cities, and an MBA from The University of Chicago Booth School of Business.