Collaborations between financial services technology firms (fintechs) and financial institutions are occurring more frequently than ever. Many financial companies see fintechs as an affordable, nimble solution to their technology gaps. Others partner with fintechs for assistance with compliance and regulatory governance. The fastest-growing fintech segment enables financial institutions to diversify their customer bases, expand revenue and even increase deposits via banking-as-a-service agreements. It is easy to recognize the contribution a fintech can make to your organization. However, it is more challenging to find the right fintech partner for your business. Ideas for how to do that is the goal of this article. We will discuss what steps you should take before entering a fintech relationship, efficient ways to conduct due diligence and ensuring the compatibility of your fintech partnership before and during the relationship. WHAT TO KNOW BEFORE COMMITTING Can the fintech you are considering produce consistent value over time? Can you demonstrate that the relationship is being appropriately managed amid increased regulatory scrutiny of third-party risk management? These are just a few of the things you will need to know before a partnership can begin. Ultimately, choosing the right fintech will come down to the quality of your institution’s due diligence. Done well, due diligence can save your business time, money and resources. It can also help focus your analysis by ensuring a potential partner can meet such criteria as: • Financially and operationally capable of providing the desired services. • Adds organizational value while maintaining proper controls. • Enhances your organization’s brand and reputation. THE DUE DILIGENCE JOURNEY The discovery process starts with internal decision-makers and how they respond to the foundational questions, which are designed to help shed light on the pros and cons of a potential partnership: 1. What benefit(s) will we achieve by partnering with the third-party fintech? 2. What are the estimated savings and/or revenues we can expect over 1-5 years? 3. How much will it cost to establish and maintain the partnership over 1-5 years? 4. What kind of risk management program does the fintech partner possess? 5. Can our infrastructure and staffing handle the activity generated by the partnership? 6. Is the fintech’s risk culture and business approach compatible with ours? 7. Does the fintech have a good business reputation based on online research and discussions with current business partners? A company can deepen the effectiveness of due diligence by tapping into or creating additional resources. For example, your company’s existing third-party risk management team should help evaluate a potential fintech partner. A cross-disciplinary team could be assigned to other essential tasks, such as identifying critical risks and creating a partnership implementation plan. By BHG Financial Institutional Network ICBC Gold Associate Member and ICBC Preferred Provider INDEPENDENT REPORT | 25
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