Among the considerations banks should use to evaluate and gauge a potential fintech partner are its business experience and qualifications, its financial condition, the firm's legal and regulatory compliance controls and its operational resilience, according to information from the guidance. The guidance, which comes in the form of a new pamphlet called “Conducting Due Diligence on Financial Technology Companies A Guide for Community Banks,” was written by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
“Community banks are entering into business arrangements with fintech companies to offer enhanced products and services to their customers, increase efficiency, and reduce internal costs,” according to regulatory agencies. “Due diligence is an important component of an effective third-party risk management process.”
From Twitter
Allan Rwakatungu @arwakatungu Aug 30
"Replying to @shyakaster @rkabushenga and 2 others. I see Fintech as broad. Telecoms, Banks, Technology companies @xentetech, and others offering financial services over tech platforms are all Fintech. In my view, adoption is trending upwards quickly, and in 10-15 years almost all finance will be FinTech".
The guidance specifically urges community banks to spend some time going over a potential fintech partners' strategic plans. These plans could involve new product launches, acquisitions or partnerships, for example. Further, considerations should also extend beyond simple business activities and should also include an evaluation of a fintech company’s values, culture and style, it reads. To do so, banks should look to mission statements, patents, employment policies and social media footprints.
“A fintech company, its directors, or its management may have varying levels of expertise conducting activities similar to what a community bank is seeking,” reads the guidance. “A fintech company’s historical experience also may not include engaging in relationships with community banks. As part of due diligence, a community bank might therefore consider how a fintech company’s particular experiences could affect the success of the proposed activity and overall relationship.”
Other useful places banks could glean information on future partners include:
- Financial statements
- Auditors’ opinions
- Annual reports
- Securities-related filings
- Internal financial reports
In the coming decades, it is likely more and more community banks will have to decide how to navigate the myriad fintech firms operating in the financial services space. For that reason, it is especially important for community banks and fintechs to begin developing relationships now as those firms grow in both number and industry influence.
To that end, the Independent Community Bankers of America (ICBA) and The Venture Center, in partnership with the state of Arkansas, launched the 2022 ICBA ThinkTECH Accelerator. “As community banks continue to transform to meet the diverse needs of their customers and the broader community, developing key partnerships will be paramount,” said Charles Potts, ICBA Senior Vice President and Chief Innovation Officer. “ICBA is proud to continue its work helping forge these deeply valuable relationships between innovative entrepreneurs and the community banks we serve.”
Fintechs interested in the incubator can apply until Friday, Oct. 15, 2021.
