Fintech partnerships to lead the way in 2023

This is part of a series looking at predictions for 2023. Click here for part one.

While initially seen as rivals, banks are now seeing fintechs as partners to build the innovative financial tools their customers want, while still retaining the trust of a traditional financial institution.

"Next year, we expect more financial institutions to embrace embedded fintech to retain relevance and prominence in customers' financial lives. If done correctly, embedded fintech can extend an institution's brand and presence into everything a customer does in e-commerce," Landon Glenn, CEO and founder of ASA, a company connecting fintechs to banks, said in an email interview.

However, there are still issues to overcome, such as how to take full advantage of these partnerships and deliver the financial integrations at scale.

In addition, banks also need to strategically invest in fintech technology that directly impacts their return on investment. Glenn said some of these roadblocks include finding the right team to handle the fintech partnership, as well as research and vet which fintech is the right fit.

Glenn said this also includes," determining which ones will solve the majority of customers' needs; contracts; time consuming core integrations; and balancing innovation with liability and risk."

In order to address this issue, Glenn recommends banks move away from models that focus on integrating one technology at a time and instead look at partnerships at scale.

"To solve for these pain points, eliminating one-to-one integrations and enabling partnership at scale, next year expect to see a rise in embedded fintech backed by a collaborative banking model. Such an approach saves the bank time, money and the burden of ongoing fintech partner management while empowering customers with wider access to a broad range of technology and tools."

But with these partnerships, there is a another key question to answer: Which technologies should banks integrate in 2023?

"Next year, banks will refocus their strategic efforts, investing in innovative technology that directly impacts ROI and optimizes margins," Joe Ehrhardt, CEO and founder of Teslar Software, said in an email interview.

He identified automation as a key component of this effort.

"Digitizing processes and automating workflows will not only increase efficiencies and save significant time for banks, but also help them navigate the current talent dilemma, ensuring new hires get up to speed faster. Tools like sophisticated CRM systems and digital communication options can help bridge this gap more quickly and effectively," Ehrhardt said. "Plus, leveraging modern technology and automation will allow employees to spend more time deepening customer relationships, and less time on tedious, manual processes — processes that should be left in 2022."

On the customer level, an NCR spokesperson said banks will integrate channel services to improve efficiencies and the customer experience in 2023.

"Channel services will also have a major impact on branch modernization," the spokesperson said in an email. "Connecting previously disparate channels will enable institution employees to engage with the customer in multiple, more interactive ways. Enabling simplicity and convenience will be a main priority in all customer interactions, including providing easy, digital-first ways to open and onboard accounts."

All that being said, these are still economically uncertain times, so banks will have to be careful about where and how much of their capital they invest into fintech partnerships or other technology initiatives.

"A top priority next year will be achieving positive unit economics as we potentially enter recessionary times," Tim Hamilton, CEO and founder of Praxent, said in an email interview. "This will require banks to carefully prioritize features, projects and marketing spend to become more focused. They will need to know and understand the type of business they are (either a customer intimacy, product leadership, operational efficiency or platform business) and make the hard choices to avoid costly distractions. This is especially important for community institutions that want to avoid acquisition or closure; they must pick their disciple and stay in that lane."