Fintechs looking for collaborations: Evaluate partners on these five parameters 

The digital transformation has revolutionized the way people interact and transact. Lending and payments have been disrupted by digital payments. Non-banking entities that are powered by new-age technologies have made their way into the world of banking and finance, and in the last ten years alone, we have witnessed a paradigm shift in the way the world does financial transactions/ banking. The collaboration of different entities with FinTechs will bring about better security, an improved customer experience, and efficiency in processes. In a world that stands at the threshold of all things digital, it only makes sense that FinTechs are the banks of the future. The numbers tell a clear story: in India alone, the funding for FinTechs witnessed a 3X increase in the last year alone. Further, in the last five years, there has been more than $9 billion invested in digital lending, and by 2030, it is anticipated that the business would be worth $515 billion. 

To attract further investment in India’s FinTech sector and to achieve true scale, the collaboration of non-banking financial companies (NBFCs) with other entities is imperative. The best way forward is to collaborate and leverage each other's strengths: By keeping the following parameters in mind, two entities can take the first step in this direction. 

1. Alignment between Both Entities

For any partnership to work, it is crucial that the vision and business goals are aligned. The entities should be on the same page when it comes to customer segmentation, product offering, pricing, customer related processes, portfolio risk, and compliance requirements, to name a few. It is safe to say that alignment between companies is the first step to securing a successful partnership. 

2. Maintaining a symbiotic fit

A partnership between the two entities should be synonymous with a symbiotic relationship. A Fintech should be aware of an entity's market capital access, scalability, and risk appetite. The entity should provide the ability to diversify funds and mutually agree on the role it will play under DLG/RE regulations. The regulations help collaborations fructify as they identify clear roles and responsibilities that the partner firm can take on. Together, they can maintain a symbiosis and work closely together to achieve their goals and vision. 

3. Agility of technology platforms and Ease of Integration 

Integration with partner ecosystems, which allows for thorough integration with data sources and processes, is of paramount importance. This is determined by the level of flexibility and agility of the partners’ platforms and technical processes. Seamless and efficient integration requires clarity on the degree of integration required, the customizations necessary, and any limitations beforehand.  Most importantly, both partners need to have an agile and creative development mind-set. There is no “one size fits all” model. 

4. Appetite To Take Risk And Fuel Growth Of Fintech

FinTech companies enter into collaborations for various reasons, like to expand distribution, get insights into new customer segments, diversify their product offerings,  and deliver superior infrastructure, to name a few.  However, we need to be aware of the risk appetites of the entity. It is imperative that they have the risk appetite, sophisticated backend systems, and necessary investments to not just commence business but to commit to continuous growth. This has to be supplemented with commercials that make business sense for both. Only then will these partnerships be scalable.  

5. Transparency and Communication

The hallmark of a successful, scalable, and long lasting partnership is properly structured models and watertight SOPs. All processes, handshakes between the parties, roles and responsibilities, data ownership and transfer, payment terms and conditions, liability, etc., need to be very clearly spelled out and agreed to prior to the commencement of business. One cannot overemphasize the need for timely reporting and robust MIS’- this is the only way to build trust, ensure accountability, and grow together to achieve scale.

While there is tremendous opportunity for collaboration in fintech, there are also significant business, legal, and regulatory challenges. The key to success is balancing operational considerations and growth with compliance and risk management.

The article has been written by Sonia Gupta, CBO, True Credits