Financial Institutions and FinTech: How to ensure successful collaboration

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It’s now widely accepted that collaboration between Financial Institutions (FIs) and FinTechs is mutually beneficial given their complementary strengths. Financial Institutions have access to capital, regulatory expertise, a customer base, data, and trust that FinTechs need. FinTechs on the other hand bring innovation, agility, and efficiencies. According to a recent EFMA report, more than eight in 10 FIs plan to increase collaboration with FinTechs in the next three to five years.

How FIs can make onboarding easier for Fintechs
However, many in the sector recognize that onboarding processes for FinTechs still do not work as well as they need to and this is one factor holding back collaboration. According to a survey carried out on FinTech partnerships earlier this year, 90% of respondents identified current procurement procedures as difficult (50%) or satisfactory (40%). Only 10% thought that existing procurement and contracting procedures were working well.

FIs can encourage smoother engagement by actively addressing procurement and contractual challenges to make onboarding easier for FinTechs. Specific actions that can assist include the following:

  • Being explicit about the FI’s aims, objectives and key drivers when it comes to partnering with FinTechs
  • Clearly communicating the FI’s requirements/criteria for a FinTech partner and ensuring expectations are aligned at the outset
  • Providing upfront an outline of the procurement timetable and details of the relevant stakeholders that the FinTech will need to engage with. Many FinTechs complain about the “procurement valley of death” so it’s best that they are forewarned that they may need to be prepared to build their case over time.
  • Providing a due diligence checklist for FinTechs upfront and tailoring those requirements to the size and nature of the FinTechs they want to work with
  • Ensuring that the contractual documentation (e.g., NDA, proof of concept terms, pilot terms, escrow terms and/or other required contractual terms, etc.) put forward to the FinTech are specifically tailored for FinTech collaborations.
  • Given that a start-up may not have much legal support, FIs should consider including drafting notes in their standard partnering agreements explaining the FI’s rationale for certain provisions. For example, our survey identified that data privacy, liability, regulatory compliance, termination and IP tend to be the most negotiated issues, so providing commentary on these clauses could be a good starting point.

Seventy-five percent of those surveyed said that they typically contracted on the FI’s terms. Of those, 90% of our survey respondents said that terms required change, ranging from “some change” to “a lot of customization.”

Many of these principles are equally relevant to companies in other sectors that are looking to work with smaller, innovative start-ups, including the legal sector. With an increasing focus on innovation, large enterprises have to work out how they can make the onboarding process easier. Companies that can quickly bring innovators onboard will have a competitive edge over their rivals.

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Fintech companies’ guide to supporting FIs out soon
The BSI (British Standards Institution), the UK’s national standards body, is currently working on a Publicly Available Specification 201 (PAS): “Supporting fintechs in engaging with financial institutions” guide, which is due for publication in autumn. The document in development is a useful summary of an FI’s expectations and covers a range of areas including due diligence, how FinTechs should build and present their propositions, technology, onboarding, and meeting business and regulatory demands. Once published, the PAS will be a useful guide for FinTechs preparing to engage with FIs.

Sue McLean
Sue McLean is a partner in Baker McKenzie's Technology practice in London. Sue advises clients on a wide range of technology matters, including outsourcing, cloud computing, technology procurement, licensing and distribution, digital and disruptive technologies including AI and blockchain. Sue has significant experience in advising clients in the financial services sector and is a member of the firm's FinTech group.