Fintechs are increasingly collaborating with banking incumbents – instead of replacing them, as many had once feared they might – unlocking a whole host of exciting new opportunities. A recent EY-Parthenon survey revealed that many traditional financial institutions have found that working with a fintech to gain access to innovation “can be faster, cheaper and more commercially viable than building or buying” – with 55% of banks expecting partnerships with fintechs to occupy a “very important” role in their strategies by 2025.

The EY-Parthenon survey also found that banks are already seeing significant benefits from fintech partnerships, with 95% utilizing such collaborations to enhance their digital products and reach, 87% teaming up with a partner to manage critical processes, and 86% using partners to cut costs and speed up implementation. Additionally, 64% of banks saw digital banking and data analytics offering potential for partnerships in the future.

Despite this promising evidence, a number of myths and misconceptions about partnering with fintechs remain – and this has made some credit unions and community banks reluctant to collaborate with the newer, tech-savvy kids on the block. Here are the three most notorious myths – and the reasons why they are unfounded.

• Myth #1 – “Fintechs are not ‘enterprise-ready”: While fintechs may not have to deal with same Everest of legal and compliance processes that a bank does, many fintechs have already worked with their own investors, lawyer, or other stakeholders to prepare them for compliance requirements for enterprise partnership. An added benefit: with smaller teams and shorter approval chains, most fintechs are nimble and therefore typically able to move through compliance, product development and testing processes quickly

• Myth #2 – “Fintechs believe regulation doesn’t apply to them”: Fintechs are under increasing regulatory scrutiny themselves and are required to pay close attention to their regulatory obligations. Indeed, some fintechs are even more risk-averse because they are working with newer business models, and want to be sure to do everything properly in order to stay in business.

• Myth #3 – “Working with fintechs is too risky”: Credit unions and community banks must undoubtedly do their homework when contemplating a potential match to ensure that it’s a good – and fruitful – fit, something endorsed by the Fed, which has published a guide specifically aimed at community banks unpacking best practice as regards due diligence for fintech partnerships. This process should include engaging with those who already work closely with the fintech (investors, existing partners, etc.) as part of a thorough due-diligence, assessing the soundness of the fintech’s goals, business model and expertise, as well as determining the level of investment to make in the partnership.

Finding a match

For credit unions and community banks weighing the merits of partnering with a fintech, it’s worth remembering:

1. You can always start small. Keep the stakes low. Begin with one meeting, one collaboration – and grow from there. Fintech partnerships or investments don’t have to be all-in or nothing. For example, fintechs like Narmi can help banks and credit unions digitize aspects of their customer experience.

2. You’re not alone – so don’t be shy. Credit unions and community banks often voice concerns about budget, risk, and contrasting internal culture as reasons for being reticent about partnerships. The good news is that none of these are insurmountable, and each can be deftly navigated if you embrace the fintech ecosystem’s community-minded, collaborative spirit. Seek out advice and expertise from people and organizations already active in the space: They’re a generous and helpful bunch! A good place to start is by finding a Demo Day, accelerator or incubator near you to get involved in, or just plugging into the fintech ecosystem more. 

Partnerships between fintechs and credit unions or community banks can offer a win-win. For institutions looking to modernize, fintechs can provide invaluable innovation – often more quickly and with much less red tape - and access to desirable target customers. In turn, these partnerships can help fintechs to gain scale, driving long-term sustainability so that they can continue innovating.