FinTech in the Banking Sector

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At BNN’s 2024 Accounting and Business update, we hosted a panel of banking and related industry specialists to talk about FinTechs. Bryan Mulcahey of FS Vector, William Martel of Camden National Bank, and Kyle Glover of Piece Atwood covered opportunities that FinTechs provide to financial institutions (FIs), the planning activities related to engaging a FinTech, and related risk considerations.

FinTech Opportunities

The panel initially discussed some of the opportunities that FinTech solutions can offer.  The solutions offered by FinTechs can be both very specific and far reaching. Solutions can enable FIs to offer enhanced, more flexible services and tools to their customers, while others can enable FIs to offer their unique offerings to a much larger customer base, without having to increase their current, core infrastructure.  These technologies can enhance operational efficiency, improve customer experience, and drive innovation in financial services. By leveraging FinTech, FIs can streamline processes, reduce costs, and offer more personalized and accessible services to their customers. Embracing these solutions is not just about staying competitive but also about meeting your customers’ expectations and service needs where they are.  Some recent FinTech examples include:

  • Digital Payment Systems, which can facilitate seamless and secure digital transactions. These systems support contactless payments, peer-to-peer transfers, and online purchases, making financial transactions more efficient.
  • Robo-Advisors, which can provide personalized financial advice and portfolio management using algorithms. These services make investing more accessible and affordable for a broader audience.
  • Insurance technology solutions, which can leverage data analytics and artificial intelligence to offer personalized insurance products, streamline claims processing, and improve customer service. These innovations make insurance more accessible and user-friendly.
  • Regulatory technology solutions, which can help FIs comply with regulations more efficiently. These tools automate compliance processes, monitor transactions for suspicious activity, and ensure adherence to legal standards, reducing the risk of regulatory breaches.

Evaluating Potential FinTech Solutions

Once an opportunity has been identified, our panel discussed the importance of  conducting sufficient due diligence over the FinTech provider as well as the offered solution.  Regarding the provider, the FI should conduct thorough due diligence on the FinTech provider, including their financial stability, reputation, and track record with other FIs. Once deemed a good risk, the FI should also assess the security protocols of the FinTech provider to protect sensitive financial data. This includes encryption standards, access controls, and incident response plans.

When evaluating the FinTech solution, the FI should ensure that the FinTech solution complies with all relevant regulations and standards. This includes data protection laws, anti-money laundering (AML) requirements, and other financial regulations.  The FI should also evaluating the FinTech provider’s planned implementation and supporting infrastructure to evaluate the scalability of the FinTech solution to accommodate future growth and its ability to integrate seamlessly with existing systems and processes.

Finally, as part of any solution consideration, the FI should gather relevant data and perform a comprehensive cost-benefit analysis to understand the financial implications of the FinTech solution, including initial implementation costs, ongoing maintenance, and potential return on investment. The FI will need to factor subjective considerations into its analysis, such as increased customer satisfaction and enhanced retention.

Considerations for Implementing FinTech Projects

Once the solution is selected and vetted, the FI needs to prepare for implementation. When planning for the implementation of a FinTech solution, our panelists emphasized that embarking on a FinTech project is highly similar to other technology implementations. FIs should ensure that both the internal team and the FinTech team have clearly established responsibilities, and that a formal project plan is leveraged and closely managed. Similar to any project affecting banking systems, rigorous testing is crucial to ensure the system does not introduce any unexpected issues and operates as expected. Furthermore, the FI should ensure that the appropriate internal team members are trained to provide adequate first-level support for customers and to understand when to involve the FinTech provider.

Balancing Benefits and Risks

FinTech providers have the potential to significantly enhance the offerings of traditional FIs. When implemented correctly, these solutions can be a cost-effective means of improving customer experience and increasing the overall value provided by FIs. However, like any major initiative, the integration of FinTech solutions necessitates thorough due diligence and robust project management. When executed effectively, this integration can lead to a positive outcome for both the FI and its customers.

For more information or a discussion on how this may impact your bank, please contact Pat Morin or your BNN tax advisor at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.