Finovate Blog

“There is no right or wrong answer,” says Chrystina (Tina) M. Giorgio, president and CEO of ICBA Bancard about how banks can work best with fintechs. Ahead of her session at FinovateSpring 2018, Giorgio gives banks some best practice tips from the perspective of someone who has worked as a banker, board member, and innovator.

As community banks look to blend the strength of their operations with fintech innovations, bankers are questioning how to best work with fintechs and their core system providers to bring new products and services to market.

To navigate this terrain, bankers should first prioritize fintech opportunities that complement their banks’ strategic plans. Opportunities could include real-time payments, digital delivery, data analytics and artificial intelligence. They should then share these priorities with their core processors. Due to the present lack of an open banking standard in the United States, a community bank’s core processing system remains a top infrastructure element, and as such, can significantly influence software decisions. Most core processors are already working with or investing in fintech. However, open and ongoing dialogue can help guide core vendors’ investment choices.

There are three primary models banks can follow when choosing how to develop a fintech project that each come with its own risks and rewards:

• Banks can build a proprietary solution in-house.
• Banks can collaborate with a third-party to build a solution.
• Banks can purchase a fintech solution.

There is no right or wrong answer. Ultimately, the “three T’s”-time, treasure and talent should drive the decision. When working with a fintech company, banks will want to follow the process they would for any new vendor and should be sure to look at additional risk factors that pertain specifically to the solution they are acquiring. For example, depending on the solution, more thorough review may be required to properly assess fraud risk, data encryption standards, and KYC (know your customer – the process used to identify and verify customers). More general questions to ask include how long the fintech has been in business, whether it is connected to your core, how much capital it has, who is investing in it, and who its customers are.

Banks will also want to do their diligence to assess whether the vendor can meet regulatory expectations. Fintechs are not regulated like FIs, so bankers should thoroughly evaluate the vendor and the solution for regulatory compliance. Ultimately, balancing fintech utilization against the risks to consumers is the responsibility of the bank. It is vital to put compliance and regulatory issues at the forefront of any fintech deployment, whether the bank builds, collaborates or buys the solution.

ICBA released its Fintech Strategy Roadmap for community banks as they increasingly work in partnership with fintech firms to deliver services to their customers. The roadmap, written in collaboration with Hunton & Williams LLP, offers a look at how community banks can successfully create, collaborate, or invest in fintech partnerships while providing necessary considerations to ensure these strategic decisions fit within regulatory risk parameters.

The Fintech Strategy Roadmap is available exclusively to ICBA members and is the first community bank resource that takes a deep dive into the legal and compliance elements associated with fintech partnerships.

Join Chrystina Giorgio at FinovateSpring 2018, May 8 through 11, 2018 at the Santa Clara Convention Center in California. Find out more >>