The relationship between FinTechs and banks has been complicated, with relatively young upstarts competing with established financial institutions in a new and growing world of digital payments and commerce. But, in fact, banks and FinTechs may make for the perfect marriage, as each works to leverage their unique strengths and opportunities.
FinTechs, especially younger firms, might have robust technology as well as strong solutions to problems. Depending on their lifecycle stages, however, they may have less credibility and access to the market. Banks, on the other hand, might have many great relationships, significant trust and strong brand presence. However, they may not have been able to provide the next level of technology to address the problems of their customer bases.
For some time, the discussion surrounding banks and FinTechs has been framed as almost some sort of battle: Were banks going to try to build new products, or were FinTechs going to get the scale? Some FinTechs, however, see the relationship between FinTechs and banks differently: AvidXchange Chief Growth Officer Dan Drees says that FinTech firms and banks have strong assets – “and together, the combination is even better,” Drees told PYMNTS in an interview. The FinTech firm has more than 20 bank partners, ranging from referrals to relationships where banks take a product, rename it and conduct the full sales and marketing.
In a white-label relationship, the bank’s payment and treasury management specialists will include the FinTech platform in their overall product portfolio as they assess the needs of their clients, and will position them alongside traditional bank products. Moreover, customers may not realize that the product is from the FinTech firm until they get deeper into the onboarding process. All the while, the FinTech firm will stay in the background and provide technical support. After the customer has been signed, the firm will help with onboarding and service as well as ongoing customer care.
And, with another flavor of collaboration, FinTech firms will have a one-way or two-way referral relationship. Specific banks, for instance, will specialize in certain verticals: A regional bank might serve many homeowners associations (HOAs), which have special needs around compliance and how money is moved (along with dual approvals). These companies also might need a sophisticated accounts payable (AP) platform, such as AvidXchange. The FinTech firm will then work with the bank: “We’ll partner up with their bankers; we’ll align our client-facing solution consultants with them,” Drees said, adding the company will then work to configure the right solution for those customers.
In another case, the FinTech firm will sometimes find an HOA customer who needs an AP system and would also benefit from certain aspects of an HOA bank. The FinTech company would then have a two-way referral and bring in experts who understand the market – further showing that banks and FinTechs can make for the perfect match.