The Unique Considerations in Selling FinTech to FinTechs


Navigator Edition: April 2017
By: Ben Brown

With thousands of startups and over $50 billion of venture capital invested globally over the past five years, much has been said about the potential for new FinTech innovators to disrupt existing financial institutions and legacy financial technology providers. The reality, though, is that few FinTech entrants are truly “full stack” startups – most rely on industry heavyweights behind-the-scenes in one way or another. The net short-term result is that FinTech innovation has actually created new revenue opportunities for savvy incumbents.

In certain niches, FinTech entrants have built substantial businesses. In merchant acquiring, Stripe serves over 100,000 merchants and Braintree processes over $50 billion in card volume. In credit cards, credit information sites Credit Karma and NerdWallet collectively earn over $300 million per year in affiliate marketing commissions from credit card issuers. In consumer lending, “FinTech lenders” eclipsed banks as a category to become the primary originators of unsecured personal loans in 2015, according to TransUnion, and mortgages in 2016, according to Inside Mortgage Finance. CB Insights has identified 21 FinTech companies with an enterprise value of $1 billion or more.

Financial institutions and established financial technology companies can provide several services to new entrants. First, because FinTech entrants are not banks, they often need to work with a bank to access payment systems, originate loans, or obtain financial data, all of which can generate attractive fees for banks albeit the number of banks providing this type of sponsorship is limited. Second, those FinTechs that focus on customer interfaces and other front-end innovation will often look to license or outsource back-office operations. Many of the services that processors, credit bureaus, and other technology companies provide to banks are also relevant to new entrants if appropriately packaged.

While the opportunity is exciting, many companies struggle to partner with or sell services to startups. Through our own project work (with corporates and startups) and primary research in 2016, we have observed disconnects at all stages of the sales funnel from low awareness and mutual skepticism (of vendors’ capabilities and of prospects’ potential) to misaligned pricing models and implementation processes. FinTechs (and technology startups in general) require a special approach.

Financial institutions and established technology providers should consider these practices in selling to FinTechs and other startups:

1. Say What You Can Do: Some FinTech entrepreneurs and many startup employees come from outside the financial industry, which can lead to a surprising gap in knowing who the established providers are. Incumbents should not assume that FinTechs will be able to find them or understand the solutions they provide. Those service providers that have been successful working with FinTechs have invested in brand/awareness marketing, developed relationships with channel partners like incubators, and published clear product marketing.

2. Be Present: Despite maxims like “software is eating the world” and “everything is moving to the cloud,” proximity and personal relationships still matter. Companies with offices in technology hubs and an active presence at industry events like meet-ups and conferences tend to have an advantage in winning the business of startups. For example, The Bancorp, which has been a longtime sponsor of the financial technology conference Finovate and now has an office in San Francisco, has recently won a string of notable partnerships with Varo, Seed, Chime, and others.

3. Show, Don’t Tell: One of the surprising observations voiced by our FinTech clients was a frustration with traditional B2B sales tactics. Startups do not want to see polished company presentations and vague descriptions of capabilities – they want to whiteboard with engineers and get fast access to APIs and a development “sandbox.” Engineers often lead or strongly influence the buying decisions in FinTech companies. Banks and technology providers should equip their sales teams with matching technical expertise early in the sales process.

4. Focus on the Product, Not the Price: FinTech startups tend to focus on finding the right capabilities that can be deployed quickly rather than the best pricing. These companies are driven by their limited resources – and their growth-focused VC backers – to get to market quickly, generate revenue, launch additional products, and scale. One large, well-known online marketplace told us this was just basic prioritization: high-growth companies have more to gain from increasing their top-line than optimizing their bottom-line. Vendors who are easy to work with, deliver the right capabilities, and move quickly may be able to collect premium fees from FinTechs.

5. Take Risks: One of the biggest frustrations of early-stage FinTechs is the perception that no one is willing to work with them from day one. Working with FinTechs does require tolerance for a low signal-to-noise ratio at times – some prospects will fail to launch and some live clients will just never scale as promised – but being overly conservative in filtering prospects risks missing the next Square, Stripe, or Affirm. Working with early stage companies requires creating lightweight structures (policies, processes, and technology) to serve small clients and proactive relationship management to identify, nurture, and retain breakout winners in the portfolio.

While there are reasons to be skeptical of whether FinTech entrants will displace industry incumbents, it seems clear that innovation in various forms will continue for years to come. Banks and established technology providers that are willing to tailor their product marketing, sales tactics, and underlying business processes to accommodate the unique needs of early- and growth-stage FinTechs may find that these new entrants make attractive clients and partners.

For more information, please contact Ben Brown, Manager, ben.brown@firstannapolis.com, specializing in Credit Card Issuing and FinTech Partnerships.

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