Financial technology (fintech) companies are booming right now! Their emergence en mass since the Great Recession created a dramatic shift toward innovation and change within the financial services industry. But how does it all work? This article will give you a glimpse behind the scenes. 

Innovation Meets Tradition

First of all, it’s important to note that there are thousands of companies across the U.S. and the world innovating within financial products or services. The fresh competition has created everything from new products to changes in financial service delivery, much of which ultimately benefits the consumer. 

However, many of these fintech companies couldn’t reach their growth goals if not for partnerships with traditional banks. You see, traditional banks are required to have a bank charter, which is an official license for a company to operate as a bank. Without such a charter, you can’t call yourself a bank and you don’t qualify for bank benefits like deposit insurance. The reason many fintech companies partner with traditional banks is to access the power of the bank charter for their own business to grow most effectively. 

For banks to ensure fair and honest banking practices and regulatory compliance, the fintech partners agree to operate as if an extension of the bank itself. Basically, banks oversee the operations of these companies to ensure they are up to banking standards. For example, it’s important to ensure the partner is offering proper disclosures and describing products in ways that are not unfair or deceptive. 

Benefits of Partnership

This partnership is mutually beneficial. Fintech companies can build new and creative apps and processes that would take traditional banks years to complete, and they can offer them nationally. Banks can facilitate the delivery of those products and services while earning revenue and learning first-hand from agile technology companies. 

With so many people unable to access traditional banking, fintech is a great alternative. These companies can close the gap between the banked and the unbanked, reaching people in need. Fintech also solves everyday problems like making it easier for customers to purchase goods, especially when they don’t have cash available. They can make the purchase by using a loan they get at the point of sale. Simple!

In a time of rapid change for financial services, banks like Medallion Bank choose to partner with fintech companies to stay at the front of the wave. While nobody knows what fintech will look like 20 years from now, the renewed focus on the consumer and innovative financial products are here to stay…and that’s a good thing.