Digital banking is a critical channel in today's modernizing banking landscape. Digital banking providers are plentiful, but the space is dominated by the likes of Q2, Alkami, NCR and Apiture. Other significant players in the digital banking space include Narmi, Lumin, Mahalo and others in the bank and credit union space. As a fintech is considering distribution channels, much thought must be given to where the most impact can be found and is it worth the revenue share it will take to negotiate a deal with a digital banking provider.
Digital Banking Channel
Starting with a brief explanation of what digital banking entails in the context of a bank or credit union. While some larger banks and credit unions are inclined to build their own consumer and commercial digital banking products, the vast majority of community banks and credit unions will buy their digital banking products from one of the providers mentioned above (or even utilize digital banking products built and distributed by their core banking provider). Digital banking tends to encompass all digital tools that a consumer or business may use either on a mobile app or over the web. These digital banking products vary in scope and complexity across the consumer-commercial spectrum, but are mainly used to facilitate money movement functions, manage entitlements and other reconciliation oriented tasks.
Considerations in the Context of the Digital Banking Channel?
When it comes to the digital banking channel that banks use to buy and white label technology there is a lot to consider. First, some digital banking providers are mostly focused on consumer banking (i.e., mobile and web banking for consumers) while others are focused on commercial and treasury. The commercial and treasury focus requires a much more comprehensive view of business banking including lending, deposit gathering, treasury and cash management and payments. Fintech's need to do their diligence when selecting a digital banking partner based on a consumer vs. commercial emphasis.
Costs Associated With The Digital Banking Channel?
There is certainly a cost associated with a partnership in the digital banking channel. These costs include any upfront costs associated with integrating with the digital banking provider. Additionally, there is a significant cost associated with revenue sharing and reselling the fintech product through the existing digital banking sales team. These revenue share and reseller agreements generally account for 25-30% of the revenue created through this channel. That is a significant expense that needs to be factored in, but the expectation is that the fintech will be exposed to the entire client base of the digital banking provider.
How To Compare Digital Banking Providers?
The best way to compare a digital banking provider beyond a consumer vs. commercial emphasis should be based on the actual banks and credit unions that are clients of the digital banking provider. Fintechs should be focused on alignment with the existing and future client base of the digital banking provider because ultimately it's these clients that are going to generate demand for the fintech product.
Lessons Learned: Comparisons
There are promises that are made as a relationship, revenue share and reseller agreement are negotiated between a fintech and a digital banking provider. Understanding what the fintech is signing up for a creating incentives for the digital banking provider to sell the product are critical to success.
Start Small
Starting small is often the right approach with respect this channel. This means focusing on only a couple of digital banking providers that can help the fintech get distribution versus trying to strike a deal with each and every digital banking provider in the space. This will help the fintech focus on where the best results can be produced and also avoid the time and expense associated with the integration process.
Validate Results
Validating results and creating incentives for success is a vital component to success in this channel. Often a digital banking provider signs too many fintechs within their ecosystem and is unable to efficiently help facilitate sales via this channel. Negotiating a deal with the digital banking provider that creates incentives for scale is important versus just taking the out of the box reseller agreement the digital banking provider will start with.
Actionable Advice: Where to Start
While this channel is complex because there are so many digital banking providers focused on consumer and commercial banking there are some easily identifiable places to start as it relates to types of banks and credit unions, number and focus of other fintechs the digital banking provider has already signed along with understanding the sales team that will be focused on distributing the product.
Types of Banks and Credit Unions
Understanding as much as possible about the makeup of the banks and credit unions is a critical component of success. The focus of the bank or credit union in the context of consumer vs. commercial, the financial performance of these existing clients as a proxy for their ability to buy incremental technology and the culture of those existing clients is critical to success.
Final Thoughts: Digital Banking Channel
The digital banking channel has proven to be a vital channel for fintechs to distribute product through. Staying focused on a few providers initially is key so make sure these partners will be able to advocate for the fintech and support its distribution efforts. This partnership, while expensive, is a key ingredient to success because it allows the fintech to aggregate the space much more quickly that the fintech would otherwise be able to support.
About Finov8r
Finov8r is a leading embedded advisory consultancy that supports banks, fintechs, and corporations. Bridging finance and technology, Finov8r provides tailored solutions that foster profitable growth, simplify technology complexities, and deliver 5x ROI through fintech innovations. With hands-on advisory, Finov8r works within teams to achieve long-term results, unlock new revenue streams, and modernize operations. For more information, visit finov8r.com and follow on LinkedIn.
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Bank executive, fintech founder or business owner and want to get in touch regarding Finov8r advisory? Email me at allan@finov8r.com.
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