Being a Fintech is Cool. But can you sell to banks?

A Short Guide to Navigating the Unique Landscape of Bank Vendors.

Dec 04, 2023

Co-author Walt Cox.

Walt leads Partner Banking at Valley Bank after multiple payment, product & business development roles at early to growth stage startups and Redwood Credit Union over the last 15 years.

Major Thanks to Walt Cox for putting together the complete framework of thoughts expanded below in an original X Thread. If you don’t know Walt, follow him on Twitter / X @waltrcox

Introduction

For fintech startups, the prospect of selling to banks can be both exhilarating and daunting. Banks, with their vast resources and customer base, can offer a fintech significant growth opportunities. However, negotiating with them requires a nuanced understanding of their unique operational, regulatory, and cultural landscapes. Fintechs may be moving fast and breaking things but you cannot be the elephant in the faience shop of the bank. In this blog post, we'll explore how fintechs can effectively sell to banks by remembering some obvious, yet subtle points.

Banks' Operational Reality

Multiple Vendors: Banks work with numerous vendors, so competition is fierce.
Stability and Slow Growth: They prioritize stability over rapid expansion.
Risk Aversion: Banks are not designed to bear the risks of non-customers.
Outsourcing Tech: Typically, they are not tech builders but tech buyers.
Uniqueness: Each bank considers itself distinct.
Risk-first Mindset: Their approach is to de-risk first and then focus on growth.

Navigating the Vendor Paradigm

As a fintech, you may identify yourself as a disruptor, platform, or service provider. However, to banks, you are a vendor. Success in this space demands:

Regulatory Compliance: Understanding and adhering to regulations, AML/BSA, and fraud detection is crucial.
Data Governance: Showcasing robust support for data security and privacy.
Role Clarity: Knowing your role and how it complements the bank’s operations.

Aligning Incentives

Banks operate on metrics like NIM, ROA, ROE, and efficiency. To sell effectively:

Impact on Metrics: Demonstrate how your solution positively or negatively impacts these measures.
Risk Evaluation: Understand how banks assess risks in terms of technology, operations, legal compliance, etc.
Reducing Risk: Your proposition should minimize risks in all these domains.

Understanding Banks' Risk Perspective

Banks are defined by their risk tolerance. While their questions may seem excessive, they are aimed at de-risking. As a fintech:

Anticipate Questions: Be prepared to answer detailed queries about risk management.
Show Empathy: Understand that banks are bound by stringent risk assessments.

Banks as Tech Consumers

Banks generally buy technology rather than build it. Therefore:

Avoid Tech Jargon: Simplify your language to match the banks' understanding.
Demonstrate Value: Show how your technology improves efficiency or generates revenue.
Re-assure them: The closer your tech goes to the core banking, the more re-assurance they are going to need. Highlight security and safety without using complicated Cybersecurity / Infosec / DevSecOps obscurantism (see Avoid Tech Jargon).
Reference Success Stories: Provide examples of how your solutions have benefited similar institutions.

Catering to the 'Unique Snowflake'

Each bank believes in its distinctiveness. Your success depends on:

Customization: Tailor your services to align with each bank’s unique culture and needs.
Focus on the Bank: Emphasize how your solution benefits the bank, not the other way around.

The De-risk and Grow Mindset

Banks face regular scrutiny from regulators and are liable for non-compliance. Your strategy should:

Understand Regulatory Pressures: Acknowledge the frequency and impact of regulatory visits.
Offer Compliance Solutions: Position your product as a tool for innovation within the regulatory framework.

(Strong vibes of Victor and Charles from Jean-louis Gassée - See below)

Conclusion: The Three Little Pigs Analogy

In the story of the three little pigs, each pig builds its house differently. Similarly, banks choose their partners based on how well they fit into their 'house' of operations, culture, and risk tolerance. Your role as a fintech is to understand these unique constructs and adapt your pitch accordingly. Whether it's a house of hay, sticks, or stone, your approach should be tailored to withstand the market and regulatory 'winds' that challenge these financial institutions.

In conclusion, selling to banks as a fintech requires a deep understanding of the banking sector’s operational, cultural, and regulatory dynamics. By aligning your solutions with these factors and demonstrating how you can help banks de-risk and grow within their frameworks, you position yourself as a valuable partner in the ever-evolving financial landscape. Remember, it's not just about being a disruptor; it's about being a collaborator who understands and respects the unique environment in which banks operate.