Pretty Easy to Establish, Very Hard to Execute
While it is relatively easy to establish a partnership between financial technology providers (both incumbent and emerging), it is very challenging to execute successfully. Over a series of posts, this KGA blog will detail the challenges to executing a successful partnership and the best practices for overcoming those challenges.
Current Partnership Environment
Of the 3 basic 2-5X growth strategies (more product, new market, partner or acquire) for financial technology providers, establishing partnerships has become more popular lately. The definition of partnership for our purposes is one that helps grow each party’s business due to market access or product enhancement.
Incumbent (larger) fintechs may want to expand their product capabilities but their technical debt makes timeliness a blocker; or they may want niche-market access but taking a de novo approach is too risky. Emerging (smaller) fintechs often have a relatively narrow solution for a smaller market segment; when they want to offer a more robust solution or reach new markets, they may look for partners.
There are many options for the nature of the partnership from one in which the partners are loosely-coupled (e.g., a referral arrangement) to one that is tightly-coupled (e.g., an OEM relationship) and many models between those ends of the spectrum.
The successful partnership designs the right model that works for the partners and the buyers. Otherwise, the partnership struggles, often after the partners have done a market launch.
A very clear case of the need to get partnerships right is illustrated by digital banks (whether by traditional or startup banks). A digital bank requires many capabilities found in a brick-and-mortar bank. The required capabilities go well beyond online banking to include billpay, account opening, AML, A2A transfers, and much more. The digital banks expect the vendors of these various digital solutions to partner with each other so that the bank doesn’t have to integrate all the pieces.
The Biggest Partnership Challenges
To ensure a successful partnership, common challenges will be covered in this blog series, including:
- “Wrong Partnership Objective” – should be profit, not revenue
- “Unclear Client Benefit” – clients must want a partnership solution or “no sale”
- “Just Another Client” – partner needs are not client needs
- “Misaligned Expectations” – sync the partners on goals and execution
- “Under-Investment” – partnerships require active management & improvement
- “Wrong Partnership Metrics” – if the objective is incorrect, the metrics will be too
- “More Than One Partnership Model” – multiple, simultaneous partner models are not sustainable
Best Practices in Partnership Execution
Additionally, this series will explore best-practices to avoid the common pitfalls, including:
- Lead Partner Proposes the Partnership Model – “what” is followed by “how”
- Document Buyer Needs – document why buyers need the partnership
- Examine Prior Partnerships – don’t repeat prior sins, reuse prior successes
- Create Partner Profile – be clear about what partner groups are ideal – for both parties
- Detail Each Party’s Interests – achieve detailed goals, avoid damaging surprises
- Create a Partnership Operating Model™ – detail the partners’ roles in meeting buyer needs
- Use a Whole-Product Perspective in Model Design – the software may not provide most buyer value
- Design the Partnership with Appropriate Detail – too little detail? partner misalignment…too much detail? can’t get a deal done
- Manage the Partnership – partnerships on auto-pilot crash
Stay tuned to future posts on each of the challenges and best practices.