The fintech ecosystem is becoming increasingly reliant on virtual partnerships. Dan Marsh is Head of Customer at Seccl, a custodian and investment technology company that powers firms at the cutting-edge of financial advice and wealthtech.
Seccl recently collaborated on the building of the Chip Investment Platform, which provides users with simple and affordable access to financial markets. Seccl acts as a custodian and ISA manager for the new investment proposition, safeguarding users' cash and assets while the API manages the trading and settling of investments.
We spoke to Marsh about the benefits of virtual partnerships and why such collaborations are performing a key role in the maturation and scaling of the fintech industry.
Why have virtual partners become such a fixture in fintech?
I think this has a lot to do with the proliferation of the API (Application Programming Interface) over the last 10-15 years, and the impact it’s had on the way products are designed and developed.
Thanks to APIs, companies no longer have to build it all. Instead, they can focus their efforts on creating an amazing overall customer proposition and user experience, and plug into digital partners for everything else.
In this sense, APIs have allowed a really vibrant ecosystem of digital services to emerge – in fintech as elsewhere – which has had the positive effect of lowering the barriers to innovation across the board. Companies no longer have to reinvent the wheel, but can instead leverage the work of other companies to bring their own ideas to market more quickly and affordably than ever before.
Which areas of fintech are most reliant on virtual partnerships to succeed, and why?
The list is practically endless. But typically we find that the most popular areas that fintechs look for outside support in are payments processing (be it debit/credit card, direct debits, or open banking), anti-money laundering (AML), or ‘know your customer’ (KYC) verification services and, in the case of investment or wealthtech propositions, the actual infrastructure of trading and settling investments.
Forming a partnership with a digital provider can help scalability - especially in the early stages. Are virtual partners just a stop-gap until the sector matures? Or are they here for the long haul?
I think this is just the new normal for technology-driven enterprises. To take a somewhat crude, non-fintech example – Uber didn’t waste time building mapping software or payments processing kit when it was launching its app, and it still hasn’t to this day.
It comes back to the question of why you’d want to use partner services in the first place – and for me that’s to avoid unnecessary and costly distraction or re-invention, and instead focus on what you can do better than anyone else. While that list of things might change over time, I think that the principle test remains the same.
Really the only thing you shouldn’t outsource is the overall user or customer experience you’re looking to provide – and if building something doesn’t provide a key competitive advantage or materially reduce business risk, then I’d say you really have to ask why you’re building it.
Outsourcing to digital partners is often essential for small startups – but what about more established companies?
Even well-established fintechs will use digital partners to move fast and stay nimble. Here at Seccl, for example, we’re working with large and very well-known fintech brands to help them launch investment propositions far more quickly and affordably than would be possible were they to do it themselves.
What challenges do companies face when deciding to work with a digital partner?
I think the biggest challenge – and the biggest thing to test up-front – is philosophical alignment. The word partner is really important here; the best partnerships aren’t vendor-client relationships, but instead real partnerships.
It’s important to have a deep bond of trust between both businesses because, ultimately, the only way you can protect yourself is to align yourself with partners who think as you do.
As long as you’re both consumed by making sure that you’re doing the right thing by your customers while keeping them and yourself safe, you’ve got a really strong platform for growth for both businesses.
Are incumbents more or less likely to entertain the idea of a virtual partnership than they were a decade ago?
Definitely more likely, for the reasons described. The pace of change is such that incumbents need to quickly and aggressively re-evaluate their technology if they’re to keep up with the pack and continue to innovate.
While slightly different, I think you only need to look at the raft of acquisitions and investments in this space over the last few years to see the direction of travel. Goldman Sachs recently invested in both Starling Bank and ComplyAdvantage, while only yesterday JP Morgan announced its acquisition of Nutmeg.
Technology is moving so fast that it's often more cost-effective to outsource than constantly update internal systems. Do you see a time when M&A and the merging of partners become the more popular solution?
Ha, beat me to it! Yes. We’re already witnessing continued investment from incumbent ‘legacy’ businesses in newer, cutting-edge technology-led firms – and I think this trend is set to continue.
The proliferation of APIs is making for an ever-growing ecosystem of technology, and it’s leading to an increasingly connected web of partners across fintech and beyond.
Main image credit: Getty
About Dan Marsh: As a qualified financial adviser with 10 years of industry experience, Dan Marsh works directly with Seccl's clients to understand their commercial challenges, and explore how technology can help them to build stronger, more sustainable businesses.
About Seccl: Seccl provides firms of all sizes with affordable custody, trading and settlement services, feature-rich investment management technology, and a suite of paperless adviser and client portals. Seccl’s publicly documented APIs to get plug-and-play access to the financial markets – helping them to launch new investment propositions more quickly and affordably.