Fintech

Why Bank-Fintech Partnerships Fail, and How to Prevent the Embrace of Death

Published

7 months ago

28 June, 2024

Why bank-fintech partnerships go sour and how to prevent the hug of death

Coined by MIT researcher Alan Thorogood, the phrase “death’s embrace” refers to a situation in which the mismatch between bank and fintech priorities and their relative speeds results in over-indexing of fintech assets and failure to achievement of fintech strategic objectives.

Fintechs thrive when they move quickly and through “consistent growth in customers, funds and transactions, which in turn makes it easier to raise capital and scale their products and businesses,” says Scott Simari, principal at Sendero Consulting.

Banks, however, are moving slowly because they need to maintain compliance, manage risk and prevent product cannibalization, Simari said.

“It’s the endless errands, meetings, toll booths and reviews, often a lot of activity and strain on fintech resources without significant productivity. From a fintech perspective, it’s an opportunity cost problem; the time and resources spent on support the financial institution could be better used to achieve its strategic objectives,” he said.

There’s a lot to be said about the benefits of bank-fintech partnerships and how they can drive the financial sector toward innovation. There’s also a lot that can go wrong.

Lots of talk, no money

For banks, one of the worst things that can happen with partnerships is investing in a relationship with a fintech that bears little fruit. For example, loan productivity and loan volume are top priorities for banks seeking fintech partnerships, but only 28% of banks report seeing a 5% or more improvement in these areas, according to research.

Source: Cornerstone Consultants

Creating effective partnerships is difficult: banks must spend a lot of time vetting potential partners and then integrating their technology into their core and ancillary systems. In addition to technical issues, internal bank red tape can also delay time to market.

This barge movement may lead to delays or inferior results for the bank, but for the fintech it can be comparable to a death sentence.

The partnership processes to pay attention to

1) The Compliance Maze: For banks, compliance is an unloved but necessary part of their operations, which means a fintech can find itself spending a lot of its time ensuring it meets standards and, conversely, less time on activities that will help the fintech grow. “Capital raising is intense; eighty percent of my time is spent on that,” one fintech founder told Thorogood in our research.

2) The regulatory drag: “Large institutions’ stringent regulatory requirements and risk management protocols can disproportionately consume fintech resources, leaving them with limited bandwidth to innovate and iterate on their platform,” Simari said.

These processes not only take time away from capital-raising capabilities, but also leave fintechs with limited resources to spend on improving their offerings. This stagnation can be dangerous, especially if the fintech is partnering with a very large and well-known bank. “A fintech can risk having its identity overshadowed by the financial institution, resulting in a loss of autonomy and strategic direction,” he said.

How to avoid the embrace of death

The embrace of death is not good for either partner. While the bank may initially benefit from the fintech devoting a large portion of its resources to the relationship, the stagnation that the fintech may experience because of this affects the benefits a bank can achieve in the future. Avoiding an overly taxing partnership like this is the best policy:

Start independently first: Partners can consider standalone launches rather than diving in and integrating products with enterprise platforms. “This approach facilitates rapid market entry, allows for easy assessment of value and allows for direct separation if necessary,” Simari said.
Keep tabs on your riflescopes: The embrace of death is more likely to occur if the scope of the partnership increases very rapidly, leading to “dependence on various business functions,” he said. Expanding the mandate of the partnership may cause delays and internal conflicts, as well as increased costs for the IF. Therefore partnerships should start small and with clear objectives from day one.
Set boundaries: According to Simari, fintechs should clearly define the relationship, distinguishing between a strategic partner and a transactional one. This allows both partners to start the value matching process early in the deal and mitigate any risk of the relationship becoming too much for either partner to bear.

“Transparency from fintechs about their current capabilities is essential, avoiding the temptation to oversell future product developments,” Simari said.

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Fintech

Lloyds and Nationwide invest in Scottish fintech AI Aveni

Published

6 months ago

29 July, 2024

FinCrypto Staff

Lloyds and Nationwide invest in Scottish AI fintech Aveni

Lloyds Banking Group and Nationwide have joined an £11m Series A funding round in Scottish artificial intelligence fintech Aveni.

The investment is led by Puma Private Equity with additional participation from Par Equity.

Aveni creates AI products specifically designed to streamline workflows in the financial services industry by analyzing documents and meetings across a range of operational functions, with a focus on financial advisory services and consumer compliance.

The cash injection will help fund the development of a new product, FinLLM, a large-scale language model created specifically for the financial sector in partnership with Lloyds and Nationwide.

Joseph Twigg, CEO of Aveni, explains: “The financial services industry doesn’t need AI models that can quote Shakespeare, it needs AI models that offer transparency, trust and, most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, vetted by financial services experts for specific financial services use cases.

“FinLLM’s goal is to set a new standard for the controlled, responsible and ethical adoption of generative AI, outperforming all other generic models in our selected financial services use cases.”

Robin Scher, head of fintech investment at Lloyds Banking Group, says the development programme offers a “massive opportunity” for the financial services industry by streamlining operations and improving customer experience.

“We look forward to supporting Aveni’s growth as we invest in their vision of developing FinLLM together with partners. Our collaboration aims to establish Aveni as a forerunner in AI adoption in the industry, while maintaining a focus on responsible use and customer centricity,” he said.

Source

Fintech

Fairexpay: Risk consultancy White Matter Advisory acquires 90% stake in fintech Fairexpay

Published

6 months ago

29 July, 2024

FinCrypto Staff

Treasury Risk Consulting Firm White Matter Alert On Monday he announced the acquisition of a 90% stake in the fintech startup Fair payment for an undisclosed amount. The acquisition will help White Matter Advisory expand its portfolio in the area of cross-border remittance and fundraising services, a statement said. White Matter Advisory, which operates under the name SaveDesk (White Matter Advisory India Pvt Ltd), is engaged in the treasury risk advisory business. It oversees funds under management (FUM) totaling $8 billion, offering advisory services to a wide range of clients.

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White Matter Advisory, based in Bangalore, helps companies navigate the complexities of treasury and risk management.

Fairexpay, authorised by the Reserve Bank of India (RBI) under Cohort 2 of the Liberalised Remittance Scheme (LRS) Regulatory Sandbox, boasts features such as best-in-class exchange rates, 24-hour processing times and full security compliance.

“With this acquisition, White Matter Advisory will leverage Fairexpay’s advanced technology platform and regulatory approvals to enhance its services to its clients,” the release reads.

The integration of Fairexpay’s capabilities should provide White Matter Advisory with a competitive advantage in the cross-border remittance and fundraising market, he added.

The release also states that by integrating Fairexpay’s advanced technology, White Matter Advisory aims to offer seamless and convenient cross-border payment solutions, providing customers with secure options for international money transfers.

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Fintech

Rakuten Delays FinTech Business Reorganization to 2025

Published

6 months ago

29 July, 2024

FinCrypto Staff

Rakuten (Japan:4755) has released an update.

Rakuten Group, Inc. and Rakuten Bank, Ltd. announced a delay in the reorganization of Rakuten’s FinTech Business, moving the target date from October 2024 to January 2025. The delay is to allow for a more comprehensive review, taking into account regulatory, shareholder interests and the group’s optimal structure for growth. There are no anticipated changes to Rakuten Bank’s reorganization objectives, structure or listing status outside of the revised timeline.

For more insights on JP:4755 stock, check out TipRanks Stock Analysis Page.

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Fintech

White Matter Advisory Acquires 90% Stake in Fintech Startup Fairexpay

Published

6 months ago

29 July, 2024

FinCrypto Staff

White Matter Advisory Acquires 90% Stake in Fintech Startup Fairexpay

You are reading Entrepreneur India, an international franchise of Entrepreneur Media.

White Matter Advisory, which operates under the name SaveDesk in India, has announced that it is acquiring a 90% stake in fintech startup Fairexpay for an undisclosed amount.

This strategic move aims to strengthen White Matter Advisory’s portfolio in cross-border remittance and fundraising services.

By integrating Fairexpay’s advanced technology, White Matter Advisory aims to offer seamless and convenient cross-border payment solutions, providing customers with secure options for international money transfers.

White Matter Advisory, known for its treasury risk advisory services, manages funds under management (FUM) totaling USD 8 billion.

Founded by Bhaskar Saravana, Saurabh Jain, Kranthi Reddy and Piuesh Daga, White Matter Advisory helps companies effectively manage the complexities of treasury and risk management.

The SaveDesk platform offering includes a SaaS-based FX market data platform with real-time feeds for over 100 currencies, bank cost optimization services, customized treasury risk management solutions, and compliance guidance for the Foreign Exchange Management Act (FEMA) and other trade regulations.

Fairexpay is a global aggregation platform offering competitive currency exchange rates from numerous exchange partners worldwide. Catering to both private and corporate customers, Fairexpay provides seamless money transfer solutions for education, travel and immigration, as well as simplifying cross-border payments via API and white-label solutions for businesses. Key features include competitive currency exchange rates, 24-hour processing times, extensive currency coverage of over 30 currencies in more than 200 countries, and secure, RBI-compliant transactions.

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