Terminology and technology evolve. Fintech, or financial technology, originally referred to just banking systems. However, for banks and credit unions it has come to incorporate disruptors taking hold in financial services, many of them driving digital transformation. Deciding whether fintechs should be a friend or a foe might be one of the most critical decisions traditional financial institutions might consider for evolving their technology moving forward.
Numerous traditional banks and credit unions struggle to compete with fintechs in terms of innovation and speed in areas such as payments, money transfer, lending and investing. Many financial institutions must overcome the limitations of legacy systems designed some 50 years ago, way before the web era began and fintech became so important in the evolution of digital banking.
In turn these fintechs have to navigate the integration of their technology to the core and other systems when they partner with banks and credit unions.
To close this huge “in-app-ness” between traditional banks’ legacy systems and innovative technology used by challenger banks, many organizations take advantage of application programming interfaces (APIs) to help disparate systems communicate.
Banks Consider a Fintech Partnership
Fintech firms can help financial institutions overcome technical issues and benefit from previously untapped revenue-making opportunities. This contributes to a growing trend for banks and credit unions to partner with fintech firms to help bring new products to market, attract new customer segments, and differentiate themselves from competitors.
Alliances allow banks and credit unions to take advantage of innovative banking technology and offers different ways to work with fintechs. Such as building out APIs on core services where financial institutions expose parts of their infrastructure to the fintech community.
From the banking institution’s perspective, these are certain strategies to consider such as their unique value, core competencies, digital strategy and the assortment of assets and tools available in partnership opportunities.
There are many questions banks and credit unions must answer when considering a fintech partnership. Such as what are the supporting systems that make up their current technology ecosystem? Who are their current partners and vendors who provide products and services?
Fitting Fintechs to Banks
Each bank or credit union better understands its base and the technological needs.
If banks and credit unions want to ensure they have a better digital experience a fintech partnership can help speed up innovation and shorten the development cycle. For example, people who are insecure about their finances might turn to fintechs in the financial wellbeing area such as personal financial management, budgeting, credit building, debt reduction, short-term savings, spending behaviors and financial goal setting and crisis. Some mortgage startups have shown pretty strong traction and growth during this pandemic time.
Another area for financial institutions to explore with fintech partnerships is anything related to payments particularly contactless disbursements. People would rather use their phone, and some retailers have taken advantage with apps offering specific experiences.
Fintech startups and developers also face many unexpected growing pains and challenges as well when integrating their technology with many bank core systems.
Fed Governor Lael Brainard said in remarks before a conference on financial innovation. “‘Run fast and break things’ may be a popular mantra in the technology space; it is ill-suited to an arena that depends on trust and confidence.” However, Brainard added it would be a lost opportunity if fintech products did not continue to expand access in a socially beneficial way.
The Fed continues to review an entire assortment of fintech innovations and ideas that are starting to transform components of the financial system.
API Marketplaces Helps Fintech/Bank Connections
With their growing significance, developers need a place to shop for APIs — or shop them to others. API portals, offering either home-produced or a template-based tools, was the primary source of APIs for a quite a few years. Portals have gradually given way to marketplaces.
Whereas API portals usually offer positioning for a single API provider while letting developers integrate and securely onboard with the API source; the marketplace allows developers a one-stop shop for everything from integrated onboarding to features such as security issue tracing. In addition, marketplaces aggregate a number of API providers into a holistic view.
The marketplace model lets financial institutions continue to provide and develop their core services, but also provides an opportunity for them to fill gaps within the products and services they generate from their handpicked partnerships.
This approach also levels the playing field for fintechs and API providers. The marketplace increases exposure for API developers of all sizes. For some providers, deploying to a marketplace can mean replacing their portals completely. They can also market APIs based on categories and how they interact with consumers, third-parties and applications.
A trustworthy marketplace should fundamentally feature a straightforward interface with groupings and a search mechanism. It should also deliver all essential material for the API such as documentation and sample code. However, it is also vital that an API marketplace contain a security component because of the troubling concerns associated with cloud security and an increase in cyberattacks within the existing cloud API market.
With NXTsoft’s connectivity library, they can have developers set up with a new bank or credit union customer within 90 days, no matter which core they utilize. Going to market without an independent API integration partner, means that a potential customer must go back to their core provider to connect to needed fintech solution. Not only do many core providers have competing products, but they also are extremely slow at developing API connectivity (6-12 months) and can be very expensive.
NXTsoft’s OmniConnect Platform is a premier open banking marketplace for all API needs. OmniConnect utilizes cutting-edge cloud technology to connect fintech solutions to banks and credit unions, ensuring that its clients have the most secure and reliable integration environment in the industry. It connects everything from digital banking to item processing and financial systems. OmniConnect delivers the access needed to financial institutions, removing integration roadblocks and providing a seamless connection between a solution and a financial institution’s core processing systems.