Banks, Fintechs, and BaaS - Ways to Make It Work

Alex Johnson recently published an excellent article on the future of Banking-as-a-Service (https://workweek.com/2023/04/28/thriving-in-the-next-era-of-baas/).? As I work with clients and colleagues at fintechs, BaaS platforms, and partner banks, it bears emphasizing two key challenges he notes in the relationships between fintechs and partner banks:? common language and operating rhythm.

In general, fintechs don’t speak “bank” and banks don’t speak “fintech”.? But in order to have a successful partnership, both parties must learn to share a common language in order to operate efficiently and prosperously together. ? In my view, there are four key steps to developing a common language.? First, take the time to understand each other’s value proposition.? Make sure each of you understands what it will take for the other to profit from the relationship.? Second, develop (and maybe even codify) a shared view of each party’s responsibilities (especially around compliance, regulation, and customer service).? Who does what to whom when.? Third, insist on regular communication - not just an exchange of complaint logs or statistics - but honest discussion about what is working and what is not working in the relationship.? Fourth, collaborate (don’t just exchange Powerpoints) on a shared product vision and roadmap, so that each of you knows what you have to develop, deploy, and support in order for the partnership to grow and extend.

As Alex noted in the article, fintechs and banks don’t share the same operating rhythm.? Banks are careful and deliberative; fintechs move fast and break things.? Banks are structured; fintechs are iterative.? Banks are vertical; fintechs are horizontal.? Banks focus on safety and trust; fintechs focus on growth and customer acquisition.? This lack of synchronization is both necessary to each party’s success within its respective realm, but is also an impediment to the smooth operation of the partnership.? In my view, there are two key steps to managing these differences.? First, reread paragraph two and develop the common language you’ll need to understand, adapt, and support.? Second, recognize and accept that things will inevitably go wrong sometimes.? Banks may view fintech actions as hasty and premature; fintechs may view bank actions as glacial and full of red tape.? When that happens, don’t just throw up your hands, but again rely on that common language to mutually develop and execute an appropriate solution.

As a fervent evangelist for BaaS, I believe that successful partnerships among banks, BaaS platform providers, and fintechs are critical to producing the value to consumers and businesses that embedded finance represents.? There are many challenges (and rewards) to successfully executing on them, but these two can be overcome.