FinXTech Intel 2023 report final 2 - Flipbook - Page 18
Questions to Ask a Fintech Partner
•
What rights does the bank have when it comes to ongoing due diligence? What are the
responsibilities of both parties in fulfilling that expectation?
•
What is the prospective fintech partner’s strategy and business plan? What are their founders’
business experience and qualifications?
•
What stage of development is the prospective fintech partner in? How is it funded, and
what stage of funding is it in? How financially sustainable is this company? What are their
financials? How many customers does it have?
•
How does this partner complement or enhance the bank’s strategy and align with its culture?
•
How important would the potential relationship be to the bank, its customers and its revenue
and critical systems?
•
What is the bank’s overall exposure with this partnership, and does it align with its risk
appetite? Who is responsible when things go wrong? Who is responsible for customer
complaints?
•
Could this partnership have a material impact on revenue? Would a disruption create a material
impact on customers or employees? Who does this fintech work with to power its services (like
cloud servers or APIs) that might disrupt them?
•
Go to page 23
for “What Happens
When Things Go
Wrong?”
Is the bank sharing non-public information with this partner? What does it do with that
information: Is it selling that data? Is the data secure? Is the control environment of the
partner in alignment with the bank and regulators’ expectations?
“When the fintechs of the world really started to come
and “adjust their due diligence in a way that makes sense.”
into play, most banks shied away from them because they
were so new. Even with the Federal Financial Institutions
Fintech companies also tend to have a range of operational
Examination Council’s third-party risk guidance, many of
and funding maturities, which could impact a bank’s ability to
them did not feel equipped to assess the fintechs or to have
conduct due diligence. Bankers should ascertain the business
a good understanding of the longevity of the fintech,” says
experience and qualifications of the fintech’s leadership, and
Susan Sabo, managing principal of CliftonLarsonAllen’s
the firm’s strategy and business success to date. Bankers may
financial institutions group. “[Fintechs are] all about devel-
even want to consider the company’s funding structure, given
opment, right? They want to pour all of their energy into
that many fintechs rely on venture capital investments, which
developing the next solution. So, oftentimes they fall short on
can make them financially fragile and impact ongoing opera-
structure, controls and risk assessment.”
tions if they lose that funding.
Sabo points out that most fintechs won’t have three years of
Clayton Mitchell, managing principal, fintech at Crowe LLP,
audited financial statements to present during due diligence;
says it’s important that bankers understand the fintech’s
banks wanting to work with these companies should know that
scale and development. Is the firm a start-up, or a more
16 | FINXTECH INTELLIGENCE REPORT
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