Better together: How partnerships drive innovation in banking

New technology, global market reach, cost savings, better customer service. There is a long list of reasons why banks, fintechs and issuers look to partnerships. As customer expectations continue to change, there is a greater need for partnerships to help innovate and get products to market faster.

A problem with rapid innovation is that it can cause challenges with integration and deployment, among other issues. Everyone wants the latest payment technology yesterday, and banks usually aren’t designed to “move fast and break things.”

That’s why strategic partnerships have risen to prominence as banks’ secret weapon for success.

Partnerships in the financial industry are often thought of as banks working with fintechs to support business owners and their financing needs. This has expanded to include card issuers.

Partnerships can offer opportunities to enhance a bank’s existing payment model, expand into new markets or fill a gap in features and capabilities. In fact, 95% of banks use partnerships to enhance their digital products and reach. That’s because functionalities through a partnership may be less expensive, faster and more commercially viable than if a single organization builds it alone.

Unfortunately, not all partnerships are a great match. The wrong partnership can fail to meet a bank’s objectives and result in lost or missed revenue. For example, only 14% of financial institutions (FIs) saw at least a 5% revenue gain from new products through partnerships.

Why do partnerships fail?

A main reason is FIs want new solutions fast-tracked to the market overnight and see instant results. That need for speed may not only be overwhelming for the teams involved but can also be expensive.

One survey found about 40% of bank-fintech partnerships fail to operationalize often due to poor alignment around strategy and execution.

Additional reasons include inefficient personnel or structure as well as operational challenges. This has led to 75% of banks finding it hard to meet business needs in such partnerships.

Some partnerships also discount the importance of data and analytics. Roughly 81% of fintechs worldwide find it tough to use data for analysis, machine learning, or linking with customer's apps and data systems. Without the right partner, FIs can miss out on integrating data and technology together and see the benefits from it.

Aside from all that, a significant reason partnerships fail is because mutual goals and benefits aren’t always clarified at the beginning.

What’s possible with partnerships?

The anatomy of the partner search

The search for partners typically begins with an FI or fintech identifying a gap in their capabilities. Often, multiple cardholder issues need to be addressed at the same time, such as fraud and risk management and real-time decisioning on account opening applications.

In fact, fraud and risk management is among the top domains for partnerships, according to one study (35% partnered and 24% planning to partner), behind only payment facilitation and money movement (39% having partnered and another 39% planning to partner).

“There is a need to quickly adapt to complex payment trend changes, such as fraud and the adaptation of fraudsters,” Stillwell said.

Meanwhile, FIs are under pressure to innovate and offer solutions that meet customer expectations in a timely manner because competitors are doing the same thing: Competing to win more business while building their brand through times of economic uncertainty.

The problem is the vetting and onboarding process can take many months, and there may not be a team qualified to do it or solely dedicated to the task.

The power of a partner network

The wrong partnerships can lead to wasted time and money, but the right ones can unlock new revenue streams that expedite growth and innovation.

Issuers can assemble the right team on their own through a combination of existing resources and relationships with vendors. Plus, they can quickly provide new offerings that customers want without them feeling they have to look elsewhere.

Alternatively, issuers can tap into an existing network of vetted partners. TSYS, for example, curates a collection of partners for banks in one marketplace to encourage innovation, collaboration and growth. Partners can help fill in capabilities and enable core pieces of issuers’ strategies.

TSYS may also help partners and issuers align on a common goal, asking the right questions such as, “What problem are we trying to solve?” and “How are you better together?” earlier in the process.

One successful example is TSYS’ Transaction Enrichment product, produced in partnership with Mastercard and utilizing Ethoca Consumer Clarity. Through this partnership, banks can display clear merchant names, logos and even itemized receipts directly in their digital bank channels, reducing customer confusion and lost revenue through chargebacks. This additional level of detail can also be shared with issuers’ call center and back-office teams to quickly help solve customer inquiries.

Another is the TSYS and Featurespace relationship. What started as a way to incorporate machine learning into fraud and risk scoring using AI software, has evolved into bringing multiple solutions to the market, touching hundreds of millions of transactions globally each month and helping FIs reduce costs and fraud while creating positive relationships and experiences.

Once a great partnership is established and viable solutions are introduced in the payments world, positive results could be seen for years.

If you are interested in tapping into TSYS’ network of partners to help reach your goals, click here.