Bank and Fintech partnerships: building bridges across the sector
The unique set up of fintechs often requires established institutions to adapt their existing processes and requirements for successful partnerships. From adapting onboarding processes to recognising the challenges of imposing extensive contracts geared towards larger counterparties, there are several ways that banks can help make their partnerships work well. Flip the coin and there are certain things that GCs at fintechs need to be aware of when advising their business on dealings with major banks.
Established financial institutions looking to expand their fintech footprint have three options: they can grow their own capabilities organically; they can acquire fintech businesses; or they can collaborate with fintechs, through joint ventures, partnerships, outsourcing or white label arrangements. When looking at fintech partnerships, the legal team plays a vital role in improving their efficiency and quality and helping to make the necessary adaptations for success. Conversely, failure to lead and find solutions to these challenges can strangle a partnership even before it has started.
When it comes to a bank beginning a partnership with a fintech scale-up, lawyers need to be aware that the process can be different to dealing with more mature partners. Martin Halford at Barclays explains that “you can’t always throw your 70-page document plus schedules at a fintech. You need to develop something more appropriate - that could be the fintech’s own contracts because it is their capability which we are trying to leverage.”
It can also mean that fintechs need to be very clear on where their boundaries are when it comes to signing agreements with major banks, such as when licensing or assigning key intellectual property. It’s up to the lawyers to ensure they are advising the business properly on these aspects, and to ensure that such requests are proportionate.
"Never underestimate the power you have as a lawyer in terms of bringing this relationship together and asking the right questions."
- Andre Duminy, Partner, Clifford Chance
Andre Duminy, partner at Clifford Chance, also emphasises how important it is for lawyers to take ownership of building these relationships. “Never underestimate the power you have as a lawyer in terms of bringing this relationship together and asking the right questions. The contracts can’t be drafted unless we understand it. For example, who is going to own the IP? What exactly are we creating?" Another maxim that Andre lives by is "never confuse action for progress. Sending endless drafts backwards and forwards isn’t always progress, just action – sometimes it’s better to get in a room and figure out what the points are that we absolutely need to talk about.”
It's important not to overlook the role that banks themselves may play in fintech developments, by focusing on their own organic growth and using technology to change the way existing products are offered or to develop new ones. While some banks will develop this kind of tech in-house, they will still often partner with a third-party tech provider for delivery. There have been exciting instances of this recently with digital bonds and carbon trading platforms which we expect to see more of, building on the increasing use of this model across payments and the wider fintech sector.
Q&A on the current bank and fintech climate
With Richard Evetts, Head of Legal at Monzo
What trends are you witnessing in fintech right now?
Fintechs are becoming more mainstream. I remember when PayPal was the first real fintech - all you needed was an email address to make easy payments online. Now the UK fintech industry has grown hugely, expanding well beyond payments to include fully regulated banks like Monzo. We are now one of the biggest banks in the UK with more than eight and a half million customers.
Looking ahead, it will be interesting to see whether, how and when the big tech companies will enter into financial services. Will they partner with existing banks or fintechs to get involved further, or go it alone, and how will the rest of the industry respond if they do? It will be really interesting to see if this leads to increased choice and other benefits for customers.
It’s a similar question with big payment companies such as Visa and Mastercard - what role will they play in the future fintech ecosystem? The payments sector has long been one of the most dynamic parts of the fintech market. Will we continue to see new players springing up and disrupting the market? If so, will the incumbents look to partner or compete with them, or acquire them?
Q&A with Richard Evetts from Monzo
How is the growth of fintechs in and around the banking space changing the way that banks do business?
Banking fintechs like Monzo are playing a key role in driving the digitisation of the UK banking industry, forcing the existing banks to try to keep up to meet many customers’ preference for frictionless mobile banking. Monzo’s mission is to make money work for everyone and we’re making great progress in giving customers access to a range of financial services in one, easy-to-use app. Our growth shows how much customers value this and it is natural for existing banks to react to this to try to preserve their market share.
The size and complexity of their organisations may make it challenging for some banks to keep up with the pace of change. It’s also well known that their technology platforms are much older than those of the new fintech players and that can also be a limiting factor. It will be interesting to see how well they manage to deal with these challenges and keep up with customer demand.
Of course, as we discussed at the Fintech Day, these factors also play out in partnerships between existing banks and fintechs. The Fintech might be able to develop a product or make a change quickly, but their bank partner might need more time. Given that one of the main objectives of these partnerships is commonly to allow the existing banks to move faster, these dynamics can put strain on the partnership.
What other concerns are top of mind going into 2024?
Regulation is always top of mind for lawyers in the fintech sector. The regulatory landscape is complex and continues to evolve - it is important that new products are proportionately regulated within the regulatory perimeter and that both regulations and products are designed to ensure better outcomes for customers. Our legal teams have to stay on top of the volume, pace and fluidity of product development in regulated sectors, ensuring that the sector can respond to customer needs quickly but safely.
