5 Bank And Fintech Partnership Ideas To Generate Revenue

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OBSERVATIONS FROM THE FINTECH SNARK TANK

Today’s realities in the banking industry:

  1. Banks and credit unions need new sources of non-interest income.
  2. Fintech startups need to start generating revenue.
  3. Bank/fintech partnerships are a win/win: They help banks offer services that would take them years to develop and they help fintechs scale distribution faster and more cheaply than they could on their own.

There are bank/fintech partnership opportunities out there that could generate revenue for both parties, yet few banks are pursuing those opportunities.

Why is that?

Banks’ Fintech Partnership Priorities Are Out of Whack

Among banks and credit unions planning to partner with fintechs, 86% cited “improve the customer experience” as a top priority, followed by roughly four in ten who mentioned reducing operating expenses or fraud as a top priority.

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Only about a third considered “expand the product line” to be a top priority.

The obsession with “improving the customer experience” is maddening. As I’ve argued before, mid-size financial institutions could never spend enough to catch up with the customer experiences of the megabanks.

The prioritization of cost and fraud reduction is also misguided. Partnerships generally take time to develop, deploy, and scale. Banks need cost/fraud reductions now.

This is all too bad because there are opportunities for banks to partner with fintechs that could generate revenue and help them differentiate themselves from the megabanks.

Here are five ideas for them to consider.

Five Bank/Fintech Partnership Ideas

1) Bill Negotiation Services

Banks have two bill pay-related problems: 1) Just 14% of consumers use their bank’s or credit union’s digital platforms to pay their bills, and 2) Of those that do, they’re predominantly older consumers.

Why is this a problem? Because paying bills on banks’ sites and apps offers banks opportunities to help their customers make smarter decisions about their financial lives which would (should) drive loyalty and relationship growth.

But how can banks provide bill pay recommendations if their customers don’t pay bill on their sites and apps?

They can’t. And for the past few years, they have not succeeded in stemming the tide towards biller direct behavior.

Time for a new strategy, no? How about a partnership with a fintech like Billshark that negotiates consumers’ bills to help them save and shares revenue with the bank?

Radius Bank has partnered with the fintech since October 2018. Chris Tremont, EVP of Virtual Banking at Radius declined to comment on user adoption of the bill negotiation tool or the revenue it’s helped generate for the bank, but said the bank is “happy with the partnership.”

2) Subscription Management

It’s getting tiresome hearing about the “subscription economy,” but the fact remains: On average, Americans subscribe to roughly 13 services (that’s also the median—half have more than 13).

It’s a pain to keep track of all those subscriptions.

Although there are a number of mobile apps available to track subscriptions, one does it exclusively with bank partners (currently only available in Europe).

Minna Technologies partners with banks like Swedbank and Spare Bank to help those banks’ customer manage the entire subscription lifecycle including: 1) Purchasing new subscription; 2) Tracking how much is spent; 3) Comparing and switching providers; and 4) Cancelling unwanted subscriptions.

Minna will be testing a paid model with one of its partner banks.

It’s easy to envision, however, that some consumers would be willing to pay a one-time fee to avoid the hassle of cancelling subscriptions with certain providers (have you ever tried to cancel a SiriusXM subscription?).

An added benefit to banks for this kind of partnership is the potential for reductions in customer service-related costs.

One of Minna’s bank partners receives tens of thousands of calls each month to block subscriptions or for chargebacks and disputes, and anticipates $5 million in reduced customer service costs from deploying the subscription management app.

3) Data Breach and Identity Protection Services

We’ve become numb to data breaches. Many consumers believe that “all of my data is already out there” (which is nonsense—if all of your data was “out there” already, there would be no more data breaches).

It’s a pain in the neck to track and respond to all the breaches that occur. A new website and service from Breach Clarity makes the process easier and better—for both consumers and banks.

The company analyzes every publicly reported US data breach based on more than 1,000 factors, then computes a score for each breach and provides consumers with recommendations on what they should do.

There’s just one problem, however: Consumers aren’t likely to check a website every week to see what breaches occurred and what to do about them.

The startup has an answer to that: It’s integrating its identity protection services into banks’ digital banking platforms.

Banks should view data breach and identity protection as a component of financial health, and bolster their digital apps and websites with identity safety tools to complement free credit scores and financial calculators.

4) Wealth Transfer Management

According to AARP:

“Over the next 25 years, boomers will pass along nearly $48 trillion in assets to their heirs and charities.”

Many banks see this two ways: 1) Concern that some portion of the money currently under their management will walk out the door, and 2) Optimism that they’ll develop relationships with the recipients of the inheritances.

They’re right to believe both views, but by focusing on the wealth management implications, they’re missing another opportunity: wealth transfer management.

Banks are so focused on getting their hands on the inheritances that they’re overlooking the reality that the wealth transfer process is complex, difficult to understand, and that most people don’t want to spend thousands of dollars on legal and advisory fees to get the money due them.

Two fintech startups—Atticus and Trust&Will are poised to capitalize on this opportunity and trend with easy-to-use and affordable digital services for probate, estate settlement, and estate planning.

Bank partnerships with fintechs like these two can help generate a new stream of revenue—and maybe still position the bank to be in line to help manage the money when it’s passed on.

5) Cryptocurrency Investing

Trading of Bitcoin, Ethereum, and other cryptocurrencies increased sharply at the beginning of 2020, then jumped to a new high in February—a level that was sustained for the height of the Coronavirus crisis from March through May.

About one in 10 American adults now own some form of cryptocurrency—and half of them say they’ve used cryptocurrencies to purchase goods and services.

The surge in cryptocurrency investing has been a boon for Square. Bitcoin revenue for its Cash App for Q1 2020 was $306 million, up from $65 million in Q1 2019. Not surprisingly, reports indicate that PayPal intends to offer crypto purchasing through its PayPal and Venmo apps.

While many banks prevent their customers from buying cryptocurrencies using the cards they issue, the mainstreaming of crypto investing raises new questions for banks—not just regarding allowing their cards to be used, but whether or not they should provide more cryptocurrency investment-related services altogether.

The Office of the Comptroller of the Currency (OCC) may be opening the door to that:

“National banks have the authority to provide fiat bank accounts and cryptocurrency custodial services to cryptocurrency businesses. This may open the doors for larger financial institutions to provide bank accounts to cryptocurrency companies, as well as actually provide custodial services for customers’ private keys.”

Banks should look at opportunities to provide Bitcoin wallets and other cryptocurrency trading services as a way to generate revenue and differentiate their services.

Why Banks Don’t Pursue These Opportunities

These aren’t new or original ideas. But the fact remains that few banks pursue them. Why not?

Many industry observers will claim it’s because banks don’t have a “culture of innovation.”

That’s not the cause. The real culprit: Ineffective decision-making and investment approval processes.

Proposals for new products and services in banks must meet high ROI and revenue hurdles at many banks.

The process leads banks to go after “home runs”—that one big product that will attract hundreds of thousands (if not millions) customers.

What banks need is a decision-making and investing process that funds a lot of “singles”—products that will attracts thousands (possibly tens of thousands).

In the past, this wasn’t feasible because of the high fixed costs associated with new product deployment.

Today’s world is different.

Banks don’t need a “culture of innovation”—they need to see fintech partnerships as a way to diversify (and pump up) their revenue streams.