Partnerships – the Fast-Track Route to Innovation?

Are Partnerships the Key to Fast-Track Financial Innovation?

By Freddy Kelly, Founder and CEO, Credit Kudos

The pace of change in financial services over the last 18 months is extraordinary. With people confined to their homes, many turned online to manage their finances. As a result, expectations have shifted and people want financial services to be faster, more convenient and highly-accessible.

This rapid shift in consumer demand poses challenges for the many financial institutions that provide these financial products. In particular – how can they ensure innovation keeps pace with consumer demand?

With in-house innovation research development and innovation often being expensive, many have looked outwards and forged strategic partnerships with fintechs in order to stay competitive in their respective sectors. But what makes for a successful partnership, and how can collaboration advance innovation while simultaneously tackling bigger industry issues?

Attributes of successful partnerships

One of the most important components of a successful partnership is shared values and mission. Not only is this conducive to a more harmonious and productive working relationship between the two teams, but is likely to result in the development of products that effectively address real industry issues.

For example, a financial institution with a vision of making financial services more sustainable may choose to partner with an innovative fintech that develops products which are focused on the environment. Indeed, we saw this happen earlier this year when payments and technology giant Mastercard partnered with fintech startup ekko to help turn the tide on climate change by giving customers the option to save a bottle from entering the ocean with every 5 card transactions and plant a tree every 50 transactions. This combination of scale and innovation exemplifies how organisations can come together to tackle global issues.

At the other end of the scale, it might simply be a shared interest in improving the customer experience. Earlier this year, Barclays rolled out the option for all customers to access itemised receipts in its app via the fintech Flux, addressing a frustrating part of day-to-day life for customers.

Often, partnerships are formed to serve an immediate purpose and once this has been delivered upon, the collaboration ceases to be of value. Each partnership is different, and in many cases this can be the right approach. However, when considering what makes for a successful partnership in the longer term, a shared hunger for continued innovation is essential. With this common mindset, partnerships can focus time and resources on creating products that meet evolving market demands and enhancing existing services to cater to the needs of customers.

Lastly, we can’t overlook the importance of commercial outputs when measuring the success of any partnership. At a fundamental level, increased revenue is the ultimate indicator of whether a partnership is proving fruitful or not, but other factors such as customer satisfaction and retention can also be evidence of success.

Partnering with purpose – spotlight on lending

Collaboration between companies can be one of the most effective ways to tackle some of the most pressing issues facing any industry. Take the lending sector, for example. As it stands today, many are not able to access credit from mainstream lenders as they have a thin credit file. A thin credit file, due to lack of data held in a traditional credit reference agency, poses a challenge for lenders when assessing an applicant’s creditworthiness and affordability.

Credit Kudos’ Borrowing Index found that one in four (24%) people have been turned down for credit previously, and 45% of those say they think it was because of lack of information on their credit report – for example not being on the electoral roll, or not having existing credit cards.

With research showing that credit cards are less popular among millennials than they are with older generations, this population of underserved people will, inevitably, continue to grow. There is a clear need to modernise the lending process to make it fairer and more inclusive, and partnerships between fintechs and lenders can do exactly this. Fintechs can bring new innovations and technologies – built using new data such as Open Banking – that provide lenders with a more comprehensive view of an individual’s current financial situation so they can make more informed lending decisions on the wider population.

Whatsmore, there is an appetite for new technology, especially in younger demographics. Research has found that 57% of those under 35 would be willing to share information through Open Banking to increase their chances of being accepted for a loan. Clearly, there is an opportunity for Open Banking in this space, and evidence is already demonstrated in the market of the integral role that partnerships between fintechs and lenders play in helping people access affordable credit.

The post-pandemic partnerships landscape

The pandemic has been an accelerator for the adoption of digital financial services, and as a result, people have come to expect the services they use to be more convenient and accessible than ever before. As organisations strive to deliver services that meet this demand, strategic partnerships will be critical in helping them to deliver industry-leading solutions with technology at their core.

Partnerships are a vehicle through which innovation can be delivered effectively and at speed. They are the obvious way forward in a fast-moving market and will undoubtedly be a core focus for financial institutions across the world as they respond to the post-pandemic landscape.