"How to Partner": Fintechs & Banks

Not everything is as it seems - this has never made so much sense in my life and career as it does now! I'm here for the latter so I'll focus on that. And these are my learnings and I'd like to share with whoever may be concerned, and views do not in any way whatsoever represent any organisation's position.

Around September 2020 I happened to participate on a panel organised by Seamless East Africa 2020. Topic was "Transforming Reach and Accessibility with Partnership Innovation".

Now, I was sure the conversation will narrow down to the super boring topic around "should fintechs and banks collaborate or compete?". I remember making this presentation for my former boss back in 2016/7 and I honestly didn't know the answer to this question then (don't judge me, I was young in the industry and still finding my place). Of course he pointed me towards collaboration. This became the big topic for a long time, and our colleagues in events have done more than enough to slot this topic in Fintech/Banking events asking panellist and participants the same question. It became super boring to be asked to talk about this. Why am I giving this history - to appreciate the journey to date and why I'm passionate on what actually matters today in 2021! The context of my thoughts here.

Back to September 2020 session, I started by requesting the facilitator not to ask me that annoying question - "should blah blah and blah blah compete or collaborate?" Smart guy, he didn't. The clarity is out for anyone to see, and I haven't come across many minds that advocate for competition between the two entities. Always open to that though - we learn everyday.

How should the Two Parties Collaborate?

Not much discussion is happening on the "how". I strongly believe this is where the rubber meets the road! This is the reality check, the determinant of whether the big cool talk translates to Real Value to all stakeholders involved. I joke a lot with my longterm friend Leonard Kore about these events and how people are so keen on the image and not actual content that can help make this industry better. Photos and dinners at nice venues are amazing - I love it. But what happens on Monday when you have to make it work? Are there enough conversations on the "how" to build up the participants? I don't think so - Fintech/Banking event planners please focus on this area in 2021, you'll have made a difference in the industry.

Having been on both the Fintech side for about 5 years, and crossing over to Banking with the same agenda (about 2 years and counting) of demonstrating sustainable value through Financial Technology, here's what I have learned. I find these as the key deal makers or breakers in how Fintechs and Banks in East Africa can collaborate. This matters in my opinion, if you are on either side of this conversation. My lessons could be a little biased (banking mostly) - my viewpoint is that of the guy who's representing the bank side to make these collaborations work so pick what works for you.

1. Align with Bank Strategy: Most Banks have their Digital and Innovation Strategies. As a Fintech seeking partnership please take time to understand this current status and their road map. These strategies are cascaded down to operational PSCs of the teams that you interact with in the bank, the decision makers to whether the bank will partner with you or not. If it does not align to those Objectives and Key Result areas then however fancy and amazing your idea or app looks like - it will not matter. Align you solution, product, service with these strategies. Execution therefore becomes a common goal with the partner bank and both parties have same goals and understand what success should look like. As a Fintech you need your champion within the bank staff to push your agenda - they can only do so if it makes business sense (in other words if you wish - "makes them look good in the end"). If you have none, you'll experience a lot of drag on your velocity. Unanswered/unreturned calls and unreplied emails should be your first signs. Don’t go against the current, it results to amazing presentations and flying apps but nobody just cares.
2. Runway for PoCs: Proof of Concept is gaining a lot of momentum for the smart industry players. Banks love to save every coin they can - so called cost saves, if not making more in terms of profits. The reality is fear of failure is real in banks because banks by nature are very risk averse (one of the oldest standing industry in humanity's history) to heavy upfront investments and commitments with no clear #ROI. If you can, demonstrate value through an #MVP, test and pilot it out with few users in a controlled environment (note regulator is sensitive to this), show its potential value to business and customer with minimal cost to bank - you are getting smart. This works best for Fintechs with a budget runway of say 1 to 2 Qtrs without asking for huge down payments. Make it work and if successful load this already incurred cost on the actual contract value (post PoC) when you scale the success to market. When the value is clear for banks nobody pushes hard on “how much". I'm experienced enough to say this is almost a fact! It's increasingly difficult to blindly commit to contracts with no clear value or those with any doubt on the ROI. Coincidentally this approach worked when I was still in Fintech thanks to my former boss - give it out for "free", get them excited and "addicted" to its value be it from a cost save, increased transactions, reduced TATs. Try switching it off and you'll see just how important you are as a small start up. Disclaimer: this approach is not cast on stone - be smart how you navigate it as it has a lot of moving parts to make it successful.
3. Value: For #2 above to work, you HAVE to bring your A game on whatever product or service you are proposing for partnership. Guys, value is not in the fanciness of your app! This is the biggest mistake I have seen made in the last 2 years by most Fintech players. Your value is not in how the App works perfectly during the demo with "successful registration to the DB" or "transaction balances showing in real time" or "3FA authentication of customers on the app" or whatever campus 4th year project features that used to fascinate us about the night before your defence presentation - nobody cares if it doesn't fit into the bigger picture of value in strategy and operations. We have considered great concepts that were presented on ugly ppt slides, and turned away completely working mobile and web applications. The super outspoken loud weird traditional salesman needs to rethink their strategy here - the other side of the table is smarter than you think of them! My point, it's not just about the tech, Tech enables Business remember? If that isn't clear, the conversation becomes very difficult. Tech founders & CEOs with heavy software development only backgrounds - its high time you mix your game with business-savy partners. Don't be the King type of founder, might be working against you.
4. EDD on Fintechs: Be legit! Enhanced Due Diligence on fintechs is a must for serious banks so be honest with what and who you are. Your governance structure is key as this reduces the risk on the bank side in partnering with you. If you do not have audited accounts for the last 2 or 3 years as it always comes up - say so. If you have a team of 4 resources (and not 20 distributed in 3 regions) - say so, do not paint a different picture of what the bank is about to sign up with, it will catch up sooner than you think - always does. Show me the ugly of it right now, and I'll find a way to manage it moving forward. Do not lie when asked for this information, a lot is always at stake!
5. The Mighty Regulator: banks being heavily regulated is so real (now I believe it). This has a direct effect on digital strategy execution velocity of these partnerships and expected #GTM timelines. For most of the new radical amazing products and services you propose to banks for partnership, banks are bound by Law to either notify or seek express regulatory approval of the product/service before going to market. If you didn't know, simply increasing the transaction cost to customer of a B2C mobile money transaction by even 2 bob requires approval with clear justification as to why. Yep! That's what we are facing here. Key question you need to ask yourself when approaching banks with these new products/services: Is this gonna be a bank product or your (Fintech) product?

• Bank Product Ownership - The simple question heavily determines the direction and whether this fails or succeeds. Neither option is wrong - but understand the implications of either. Bank product simple means you come in as a software vendor from whom the bank has outsourced the technology to offer the product/service to the customer. You become silent partner, the bank seeks regulatory approval of this as its own product with revenue share considerations on CAPEX, transactional revenue and maintenance fees etc. You are likely to loose the technology brand identity as two banks cannot use the same product name (your product name) in this market. You are looking at product name options such as "MyFancyProduct (of XYZ Bank) *Powered by FancyFintech". This will also mean the bank owns the KYC process of the customers as per its already approved and regulated policies around customer onboarding and DPA Act, customers are bank's and not yours, any savings done on the product are directly to the bank's core. As such, whether you want to be concerned or not - if you want to partner with a bank it would be smart to check out and understand the implications of the CBK/PG/16 on Guideline on Outsourcing (Pg 393). Check out on what banks have to comply with around "Material Outsourcing" - defined to be those arrangements, which if disrupted, have the potential to significantly impact the business operations, reputation or profitability of the institution. As a Fintech seeking to work with a bank (so called "arrangements" in PG/16) - you need to understand this because it will directly affect you.
• Your product (Fintech) Ownership - this is still an option but you'll need more muscle to move in the heavily regulated financial industry - remember you are not a financial institution. For better understanding think of M-Pesa (originally a non-financial, telco organisation) controversially being the largest bank in Kenya at the moment in terms of customer base and revenue. Most Fintech products that handle payments and transfers are forced to seek a PSP license - from CBK, as per Kenyan laws. All the best brother/sister :-). If you can hack that, then you will scale exponentially with banks bowing to your ecosystem - M-Pesa is a good example, and this enables you to create an ecosystem as opposed to a single product. When I know much more I'll write about ecosystems someday, as its a whole other topic when you think of M-Pesa, WeChat etc. This is currently the path less travelled in Kenya.

Last but not least, for fairness sake, there are other options to consider partnering with in the industry as a Fintech. Don't kill yourself if a bank partnership doesn't sail. You may consider Telcos, just be keen on your IP etc. as these are largely technology companies and I see a lot of interesting stories of guys being shortchanged. Your amazing idea/concept can simply becomes a staff's way to meet their internal KPIs - hard truth, don't be left in the cold. You may also consider Saccos and MFIs as the regulations around these are a little more favourable. The "how" to partner with Saccos is another whole different thing that I'm not informed enough to have an opinion here. I'd just say that there's more to the Kenyan culture that you need to understand if you consider this direction.

On More Thing - Be humble :-) : Strive to be pleasant to work with, we need to have fun on this journey despite the challenges. "A person is a person no matter how small".