Even just a few years ago, the technological and regulatory lift required to start a new financial services business was a huge barrier to entry. But today, the API economy has shifted how traditional banks and fintechs can collaborate, making rapid, ground-breaking innovation more attainable than ever.
That shift was the focal point of conversation on July 15 as BBVA Open Platform‘s Head of Product Susan French took the stage at Fearless in Fintech in San Francisco. The one-day conference, designed for leaders in financial services and fintechs alike, focused on the topic of “Collaboration to Compete.”
French took part in a panel discussion on partnerships in product development alongside Liz O’Donnell, co-founder and chief operating officer of Wisetack, and Aisling MacRunnels, chief marketing officer and founding member of Synack.
“Fintechs are discovering they need banking partners to do what they want to do…and banks are genuinely fearful that they will lose customers to digital startups,” making collaboration essential for both to move forward, French said.
While O’Donnell and MacRunnels spoke to the topic as fintechs looking to collaborate with banks, BBVA Open Platform sits on the opposite end of the spectrum: French spoke from her experience building Open Platform’s banking-as-a-service (BaaS) platform, which enables fintech companies to create completely new products, rather than just consuming a fintech’s services to offer existing bank customers new products.
The so-called “API economy” is making it easier for fintechs to think more about product market fit and value proposition, because they don’t have to worry so much about hiring an army of technologists to build a product from scratch.
“Fifty years ago, you had to buy a company to get its technology. Now we have other ways of sharing innovation,” French said. But creating fruitful partnerships to share those innovations isn’t without its challenges. Here’s a recap of what the panel discussed.
Communication on compliance
The panelists agreed that compliance and regulatory hurdles are big obstacles to creating successful partnerships between banks and fintechs.
Banks, used to being in the driver’s seat when it comes to regulations and compliance and bound by the regulatory framework they operate in, often apply boilerplate contractual language to a new relationship with fintechs. And founders accustomed to building relationships in the tech space aren’t normally prepared to navigate that process.
“Over-lawyering” is not the answer, French said. “Banks do need to protect themselves, and fintechs need to have reasonable expectations of what a contract or relationship might look like — but there’s space to come together in the middle,” she said.
Communication and mutual empathy are important parts of the relationship-building process, as French noted during a panel discussion at FinovateSpring earlier in 2019.
O’Donnell, of Wisetack, highlighted the ease with which companies can partner to implement technologies they need to build — but noted the importance of caution in these partnerships.
“We’re all on the buy-versus-build side of things. But…there should be higher scrutiny in working with startups,” she said. While APIs make it easier to build, O’Donnell recommended starting small and following lean startup practices to ensure a quality product.
“The exuberant confidence you need to start a company doesn’t always result in the most robust product roadmaps you can rely on, so you’re going to have to do some extra due diligence,” O’Donnell said.
French also recommended fintechs seek out banking partners with some shared cultural touchpoints. To be successful in a business relationship, “the culture of the bank needs to be supportive of fintech collaboration,” French said. “Otherwise, the best contract in the world won’t help create a productive partnership.”
Open Platform was Initially founded to support fintechs within the BBVA ecosystem, she said, but is now structured to enable the wider fintech community — both large and small. And while a shared innovation mindset isn’t mission critical to creating a product that works, it can create a smoother path to a fruitful collaboration and scale.
“We are designed specifically to help others foster innovation in their products and services,” she said. “The fact that we exist is evidence of an important cultural trait within BBVA to collaborate and enable fintechs to innovate as fast and as well as they can.”
For more information, visit Open Platform.