Choosing digital lending partners for banks and making partnerships work

Abstract

More banks are now considering partnering with FinTechs in lending areas, both for business and for consumer loans. Potentially, these partnerships offer multiple benefits to banks, allowing banks to improve their end customer experience by leveraging outside expertise, reduce the cost of lending and open a new source of revenue and deposit generation relatively quickly. The selection and due diligence process conducted by banks, however, can extend beyond a year. It often involves a dozen or more bank departments, some with conflicting agendas and without a limited time frame for decision-making. Internal bureaucracies and a complex decision-making process can result in a bank focusing on near-term pain points rather than its more encompassing needs. It can also lead to the selection of vendors that may excel in one area (for example, digital account opening) but lack the broader digital capabilities a bank ultimately requires as it continues its transition to digital. This paper aims to identify critical issues that banks need to address as they select a lending partner, implement the partnership agreement and alter it as their requirements change. It focuses on the following: • Options banks should consider in working with FinTechs and other vendors • Internal strategic decisions banks need to make before doing so • Internal decision team that is required • Due diligence checklist for vetting lending partners Readers will benefit from practical recommendations concerning how a bank should organise its approach to increase the likelihood of a targeted and successful due diligence process.