Vasyl Soloshchuk
28 January 2021

Why integrations are a diversified investment portfolio of Fintechs

Yet another alliance is announced in the Fintech world. And one more. And another. Tons of alliances are announced every week.

Thinking of the trend and its etiology, one simple question comes to mind: What moves this alliance-making machine forward? Why do companies prefer sacrificing their time and effort on building bridges to other companies rather than investing in their own strength and product lines? Won’t this alliance-making turmoil endure and, perhaps, become a new normal?

The trend lingers on

If I were to give a short answer from the end to the beginning, forming integrations across different Fintech ecosystem players is normal, actually. Companies celebrate new partnerships because they open doors for more clients, allow for enhanced user experiences, and seize bigger market share.

Other than acquiring and developing their own client base organically, Fintech companies can partner with third-party providers and other financial institutions to offer their products and services to a larger market. In this regard, integrations serve as additional validation in the marketplace of their product or service. —Tom White, iQuantifi

As currently constituted, partnerships also make the pieces of the puzzle interdependent and damage business competitors, especially when it comes to startups and small businesses. The role of technical implementation of the partnership is essential because the experience people will have while working with products depends greatly upon how competently the integration was implemented.

When advisors try to link together multiple programs, they see conflicts in assumptions. There’s nothing worse for an advisor than sitting in front of a client and explaining, ‘Yeah, these are the best tools that exist, but no, they can’t agree with each other.’ — Joe Elsasser, Covisum

Going back to the initial question, benefit from targeting a larger market share while becoming a mere cog in the machine of giant companies is not a compelling enough reason to prioritize integrations.

When the Black Swan rushes in

The lockdown presented a stress test for many innovative companies; Fintech is not an outlier. To evaluate the impact of the crisis, it’s sufficient to look through the list of wealth management firms that accepted PPP loans. While the industry is discussing whether it should take money intended for businesses forced to shut down during the pandemic or not, one point is undeniable—every company was forced to take some measures to withstand the Black Swan event, no matter whether benefited they from volatility or not. With that in mind, what made some of the Fintechs adapt to the new conditions faster? What should Fintechs do to mitigate the impact of crises like this in the future?

According to industry influencers, two of the instruments that can make a Fintech stronger in the face of uncertainty are integrations and partnerships.

It’s also important for a tech vendor to view its product set like a diversified investment portfolio. You want a mix of long-, medium-, and short-term projects; a mix of revenue, cost, and UX projects; and a mix of core platform vs. innovative projects to weather different economic environments that in turn might impact your customers in different timeframes.  — Charlie Haims, MyVest

This point shows us that planning a road map for a product is very similar to managing an investment portfolio. It has its own risk tolerance rate and should involve numerous positions to overcome volatility. Diversification breeds reliability, and partnerships bring resilience to the table. 

Still, the benefits of diversification via integrations with other players in the Fintech ecosystem are not limited to reliability and resilience. Looking at this year’s context with coronavirus and economic crisis, the growing unemployment rate caused the rise of cyberattacks, which forced companies to search for cybersecurity and compliance partnerships. The inability to predict what the market will be like tomorrow forces Fintechs to employ a trial-and-error method to quickly evaluate possible returns of their projects.

Some integrations are meant to drive new revenue opportunities for both ourselves and our clients, so delays have a direct revenue impact. Others are meant to drive cost, compliance, or user experience. Still, others are meant to test the market with a new concept to help define product-market fit before defining the revenue opportunity.  — Charlie Haims, MyVest