The Changing FinTech Landscape

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23 The Changing FinTech Landscape: A Snapshot of M&A Themes and Trends Of the three models, the partner approach is an increasingly common way of producing results that mutually benefit both the bank and the third party, whether that is a client collaborating with the bank on new product lines or a FinTech achieving scale while at the same time helping the bank expand into new markets. Early-stage FinTech companies have very different working practices and cultures from large, incumbent banks. This might explain why FinTechs have historically been viewed as challengers to their businesses and even to traditional banking models, but in recent years this mindset has changed. We now see a shift toward banks, especially those keen to innovate with cutting-edge solutions, partnering with the innovative and nimbler FinTech sector. In the U.S., these partnerships have been led by the private sector and corporate innovation teams. In Europe, they are also encouraged through public sector initiatives. For example, the U.K. Government's FinTech Pledge, of which Barclays was an early signatory, was launched in September 2020 to formalize how banks can improve guidance, clarity, and good practice when working with the FinTech sector. Such public policy initiatives, coupled with Open Banking regulation, have allowed an environment in which FinTechs can not only flourish but also work closely with banks, solidifying the staying power of the bank-Fin- Tech partnership model. Any bank entering into a partnership with a third-party FinTech company must undergo an analysis of the risks inherent in the farming out of responsibilities and services, and conduct diligence on the FinTech companies with which it partners. The diligence should cover both commercial and regulatory risks, accounting for the risks inherent in operating in such a highly regulated space. The partnership should also provide for ongoing monitoring, reporting, testing, and other means of oversight. In addition, banks should take into account the expectations of U.S. state and federal bank regulatory agencies when structuring their FinTech partnerships.

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