API-first, partnership-centric solutions are under-performing for financial service providers. In a Cornerstone Advisors publication, community FI’s measured vendor partnership performance on 8 metrics. On each metric, less than 40% of FI’s received a benefit greater than 5%. On 6 of the 8 metrics, at least 25% of the FI’s received no benefit. Of the 11 challenges named by community FI’s 9 were related to partnerships, integration, and API’s.
Through a series of articles we will examine what fintech vendors can do to improve the situation. First, a definition of the partnering approach we are addressing.
This Partnering Approach Defined
There are several partnering approaches among fintech vendors and their FI buyers. This article will cover what some call the Platform Banking (or Platform Payments, Platform Insurance, etc.) approach which has these characteristics:
- Purpose: Fintech ABC creates a service layer to give FI’s (or their vendor) access to fintech functions in the provision of the FI’s services. ABC will also make other vendors’ functions available to the FI via a partner ecosystem
- Example: FI uses a 3rd party chat-bot as part of retail customer support; FI engages data analytics vendor from bot-vendor’s ecosystem
- Customer Ownership: FI, unless co-branded
- Work: FI writes to the fintechs’ (and other vendors’ API’s) and provides orchestration among surrounding systems / processes.
Most recent fintech vendor solutions offer financial service providers (“buyers” or “FI’s” in this article) an API-first, partner-centric.
The vendors’ promise is “flexibility”: the buyer can deploy anything it wishes by accessing only the vendor features they need via API. For functions that the vendor doesn’t offer, it will make adjacent functions available via other vendors’ functions in a partner ecosystem provided by the first vendor.
Partner Ecosystem examples include:
- A digital banking vendor may not provide a KYC solution for account opening but will make available KYC solutions from others
- A small business loan origination provider may offer credit assessment via firms that specialize in that function.
The promise of “flexibility” is sound and very valuable to the financial services buyer. But the vendor execution of the ecosystem is weak.
With great “flexibility” comes “complexity”. Most of the work to implement, operate, and maintain an ecosystem-centric vendor solution is born by the buyer. And many fintech vendors are not doing enough in their solution design to help the buyer with that work.