Traditional card-acquiring independent sales organizations (ISOs) are evolving into independent software vendors (ISVs)—aka fintechs—by providing merchants with a single destination for payments and financial services. While this may alarm traditional financial institutions, which have historically viewed fintechs as industry competitors, it doesn’t have to. In fact, banks can benefit through the formation of partnerships with fintechs.

To learn more about the evolution of the fintech market and how fintechs and banks alike can come out on top by forming partnerships, PaymentsJournal sat down with Cliff Thompson, VP of Business Development at Avidia Bank and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.

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What services do fintechs provide?

To understand the value a bank-fintech partnership can offer, one must first understand what types of services fintechs deliver. The terminology used to describe fintechs is vague, and many tech-savvy organizations are eager to label themselves as one. Further, the lines between an ISO and ISV (or fintech) are blurred.

The following matrix, cited in a review published by the Journal of Financial Intermediation, delves into the range of services that fintechs offer: 

As shown in the matrix, there are a range of services offered by fintechs. In general, “fintechs are all about APIs and making financial services available so other companies can consume them, use them, and make them available to their own customers,” explained Sloane.

Partnerships between fintechs and banks are mutually beneficial 

While historically competitive with one another, fintechs and banks can work together in a way that benefits both parties. For banks, “composing a solution using fintech business partners is a unique opportunity that’s expanding in the market, increasing the depth of friction and connectivity a company has to its customers and providing new revenue opportunities,” added Sloane.