Navigating Common Challenges in Bank-Fintech Partnerships

What makes or breaks a bank-fintech partnership? Often, it comes down to one key factor: preparation. 

Bank-fintech collaborations are a staple of digital banking. They offer exciting opportunities for banks to expand embedded finance offerings and reach diverse markets. At the same time, they carry potential risks. A poorly planned and executed partnership can compromise a bank’s ability to safeguard customer funds and maintain compliance. 

However, it’s possible to drive innovation safely through these partnerships as long as banks prioritize alignment from the outset. In particular, a bank must set clear expectations for its fintech and technology partners and establish well-defined roles and responsibilities for each party.

So, how can you build a successful fintech partnership? To help you get started,  we’ll cover common challenges that arise and strategies to overcome them. 

‍What challenges do banks face in fintech partnerships? 

Fintech partnerships help banks stay competitive, but should never come at the expense of compliance or customer safety. Fortunately, awareness of potential roadblocks is the first step in taking the right preventative measures. 

Let’s explore a few challenges banks face when entering into fintech partnerships: 

• Strategic alignment and risk management.
  ‍Banks and fintechs can differ in their organizational priorities. In particular, fintechs’ focus on rapid innovation may place pressure on banks to accelerate timelines or scale beyond operational capacity. 
  
  Prior to launching a partnership, a bank should define clear objectives and evaluate whether potential fintech partners match its mission and risk appetite.

• Regulatory compliance.
  While banks are well-versed in regulatory requirements, fintechs may lack the same depth of expertise. This gap has become a focal point for regulators, especially following the Synapse bankruptcy that exposed risks and vulnerabilities in banks’ third-party relationship management. 
  
  Since banks are ultimately liable for the safety of customer accounts, a compliance-first approach is essential. 

• Data sharing and oversight.
  Fintech partnerships involve extensive data sharing, including sensitive customer information. Without proper safeguards, banks risk data breaches, unauthorized access or lapses in visibility that can lead to compliance challenges and compromise customer trust. 
  
  To establish comprehensive oversight and verify data accuracy, banks need secure, transparent technology solutions that provide full visibility into account activity.

‍Proactivity is key: How to overcome common challenges in bank-fintech partnerships 

Every fintech partnership is shaped by a bank’s unique goals and risk tolerance. Still, there are some best practices to prevent common pitfalls and protect customer safety. A consistent focus on alignment, compliance and transparent technology will help you build resilient partnerships. 

• Prioritize strong internal alignment. 
  ‍Embedded finance programs demand a high level of coordination to launch and manage, so it’s crucial to align stakeholders before moving forward.  
  
  Every team — from executives and compliance officers to IT and operations — should be on the same page about the program’s strategic goals. All parties need to be aware of the potential risks and resources required to scale the program effectively. This alignment is foundational for long-term success and shows regulators your bank is approaching the partnership responsibly.
  
  With buy-in across teams, you can better identify fintech partners with the values, expertise and maturity level to meet your bank’s specific needs.

• Vet technology providers thoroughly. 
  ‍Embedded finance programs rely on APIs to facilitate seamless data exchanges between banks and fintechs. Since building APIs is labor intensive, many banks partner with embedded finance technology providers to simplify development and maintenance. 
  
  However, choosing the right technology partner is critical. No bank can afford lapses in account visibility, especially as regulators focus on reconciliation practices for custodial deposit accounts. 
  
  When vetting potential technology providers, assess the level of integration you’ll receive. For example, direct-to-core integrations enable seamless connectivity and features like real-time reconciliation to monitor transaction data. 

• Create a standardized compliance framework. 
  ‍A well-defined compliance framework sets the tone for a successful fintech partnership. Often, banks need guidance to evaluate a fintech’s risk profile and establish the oversight required to launch and manage compliant programs. 
  
  Regulatory experts can assist with key initiatives, like building a BSA/AML strategy and identifying compliance solutions tailored to your program. Some technology providers also integrate key compliance features, like KYC checks and transaction monitoring, directly into their platforms to streamline the process. 
  
  Additionally, consider if your technology provider offers access to critical data points, such as transaction histories and ledger balances, that will help you to conduct regular audits and streamline compliance reporting. 

‍Don’t let challenges stop embedded finance success

An embedded finance program can drive growth and innovation for your bank, but careful planning is essential to sidestep costly risks. 

Treasury Prime supports banks with the tools, integrations and guidance to successfully launch a bank-fintech partnership. With our leading bank operating system and compliance expertise, you’ll have everything you need to manage cutting-edge embedded finance programs safely and at scale. 

‍Contact us to explore how we can help you achieve your embedded finance goals.