Two or three years ago, “fintech” was a threatening concept that focused on disrupting established banks. “That notion has by and large gone out the window. These days, it’s about how we can collaborate,” according to Marcus Schneider, CEO of Lending Technologies Corp., a fintech company with customers in the U.S. and Switzerland that focuses on simplifying lending processes for small and medium-sized businesses.
“If we can make small-business lending more affordable, and can get small businesses to access capital in a simpler, more efficient way, we actually help the economy,” Schneider said.
Instead of taking banks’ business, fintechs today are seen as a way to help banks be more innovative and efficient, and to “address some of the digitization challenges that are out there.”
Disconnect Between Firms’ Missions
Schneider said the main obstacle established firms looking for partners need to overcome is mismatched missions. Startups can take a trial-and-error approach as they work toward their mission, but banks, “or any other large established organization for that matter, that’s a very deliberate business.” Banks in particular are “the antithesis of being an innovative risk taker.”
Lack of Support From Leaders
That means support for innovation within a bank needs to “come from the very top,” Schneider said. “To produce results in an acceptable time frame, you need the top management to take the additional challenges of their institution seriously.”
For fintechs trying to partner with banks, even an agile and innovation-minded bank “is still a bank. Your construction and sales cycle oftentimes exceeds the financial lifetime of a startup.” He said it can take six months to three years for an established bank to execute a new technology project. “Most startups can’t last that long.”
No Room for Failure
Schneider said that among his clients, the firms that grow quickly are the ones that allow for failures to occasionally happen.
For example, say a middle manager in a traditional bank is trying to find a way to improve digital onboarding for small-business loan applicants.
“If you are working in a traditional environment, it’s very unlikely that you will work with a startup because what’s your benefit?” Schneider said. “If you fail and something goes wrong in the project, and you ‘wasted’ a couple of hundred thousand dollars, you risk your job.”
Finally, just getting a basic agreement in place can be a lengthy process, Schneider said. “The procurement process at some of these institutions can be extremely complex. If you work with the very large ones, sometimes just to get the basic agreement in place that you can be a supplier is oftentimes a six-month to a year process for agreements that completely miss the mark.”
Banks need to be more flexible in approaching collaboration with potential fintech partners, he said, and build in room for experimentation.
--- Read Mobile Bank Startup Eyes National Bank Status on ThinkAdvisor.