In an era where fintech innovation is reshaping the financial landscape, financial institutions (FIs) are increasingly relying on fintech partnerships to enhance their services and provide cutting-edge solutions to their customers. While these collaborations open up significant opportunities for growth and service expansion, they also introduce new layers of complexity when it comes to managing risk.
I recently sat down with Mark Forbis, Mary Morrison, AAP, AFPP, APRP, NCP, CAMS, and Stephen Coburn—industry veterans with deep expertise in risk management, compliance, and fintech partnerships—to discuss the intricacies of managing third-party risk in fintech-FI collaborations. They share insights on the importance of continuous monitoring, the need for in-depth due diligence, and how FIs can protect themselves from the potential risks inherent in these partnerships.
Third-Party Risk: The New Frontier for Financial Institutions
The conversation kicks off with a deep dive into the evolving nature of third-party risk. As Mark Forbis explains, it's no longer just about assessing the immediate risks posed by a direct partner. Financial institutions need to take a broader, more holistic view of their partner ecosystem—looking beyond the fintech itself to understand the risk posed by their vendors, service providers, and even fourth-party entities that may be involved in the partnership.
This expanded view is crucial, as many fintechs operate in highly dynamic and sometimes opaque environments, utilizing third-party services that may not always be visible to financial institutions. For example, a fintech might use cloud infrastructure or fraud detection tools that are unfamiliar to the FI. Mark emphasizes that institutions must continuously ask questions to gain full visibility into their fintech partners’ operations and supply chains.
The critical takeaway here is that third-party risk management is no longer just a box to check at the start of a partnership; it’s a continuous process that requires ongoing attention and diligence.
The Role of Continuous Due Diligence in Fintech Partnerships
When it comes to fintech-FI partnerships, there is a strong emphasis on continuous due diligence. Both Mary and Stephen underscore that third-party risk management isn’t a one-time task—it requires ongoing engagement. The rapidly changing nature of fintechs means that new risks can emerge quickly, making it essential for FIs to monitor these relationships continuously.
Mary emphasizes that a strong due diligence process includes more than just initial assessments; it must also include regular check-ins, reviews, and updates. These reviews should be comprehensive, covering everything from operational resilience to cybersecurity posture. This is particularly important because fintechs often operate in a fast-moving space, which could expose FIs to new vulnerabilities if not proactively addressed.
For example, fintech startups may scale rapidly, change their tech stack, or pivot to new business models without the same level of regulatory oversight that traditional financial institutions face. As a result, FIs need to stay in close contact with fintechs to ensure they are aware of any changes that could impact their own operations or risk profile.
Risk Is Inevitable, But It Doesn’t Have to Be a Roadblock
While risk is an inherent part of any business relationship, the panelists agree that it doesn’t have to be a barrier to successful fintech partnerships. As Mary points out, risk is only problematic if it’s not properly understood or managed. Fintech-FI partnerships, like any other business relationship, require a thoughtful, risk-aware approach. By doing the right due diligence upfront and implementing proactive risk management measures, FIs can not only mitigate but also embrace the potential benefits of these partnerships.
The key here is to view risk as a manageable component of the relationship, not something that should deter engagement. As Stephen highlights, financial institutions have already built risk management frameworks around things like credit risk and operational risk, which can be applied to their fintech partnerships as well. This alignment allows FIs to assess and manage fintech partnerships using tried-and-tested risk management techniques while tailoring them to the unique nature of fintech.
Contingency Planning: Preparing for the Unexpected
A crucial aspect of managing third-party risk in fintech partnerships is contingency planning. Stephen points out that, just as financial institutions have disaster recovery and business continuity plans for internal operations, they must also account for the possibility that their fintech partners might fail or face operational issues.
As an example, Stephen recalls the collapse of Synapse, a fintech that faced significant operational disruptions. While many in the industry saw red flags early on, the ultimate collapse demonstrated the importance of having a backup plan in place. Stephen suggests that FIs include provisions in their fintech partnership agreements to ensure that, in the event of a failure, their customers can be transitioned smoothly to the FI’s systems or another partner.
For example, adding a clause to the contract that ensures clients will be transferred to the FI if the fintech provider dissolves can give FIs a safety net. With such provisions in place, FIs can more effectively manage the impact of unforeseen disruptions, ensuring a more resilient partnership ecosystem.
Embracing Fintech as a Strategic Partner
Despite the risks, the panelists are strong advocates for fintech partnerships. Mark stresses that fintechs are vital to the future of banking, offering solutions and innovations that traditional financial institutions may not have the agility to develop in-house. Fintechs help FIs stay competitive, improve customer experience, and expand service offerings, making them essential partners in the modern financial ecosystem.
However, Mark also cautions against rushing into these partnerships. Given the risks involved, FIs need to take a measured approach, ensuring that both parties are aligned in terms of values, controls, and operational standards. This is where due diligence, transparency, and trust come into play, as both parties need to work together to create a mutually beneficial partnership.
Looking Forward: The Future of Fintech and Financial Institution Partnerships
As the fintech landscape continues to evolve, the panelists agree that the future of fintech and financial institution partnerships will be shaped by improved risk management practices. Institutions that effectively assess, monitor, and mitigate risks will be best positioned to leverage the benefits of these partnerships while minimizing potential disruptions.
While there has been a push for more regulation in the fintech space, the panelists express mixed feelings about the need for government intervention. Although regulations like the 1033 proposal could help provide a more structured framework for fintech partnerships, they also believe that a collaborative, flexible approach can lead to more resilient and effective partnerships. After all, the ultimate goal is to create an environment where fintechs and FIs can thrive together while managing risks in a sustainable way.
Conclusion
The partnership between fintechs and financial institutions offers incredible potential for growth, innovation, and service expansion. However, with these opportunities come risks—risks that must be carefully assessed and actively managed. Through continuous due diligence, thoughtful risk management, and strong contingency planning, FIs can navigate the complexities of these relationships and build partnerships that deliver long-term value.
Listen to the full interview on the Wrestling Payments Podcast - FinTech Waves Ahead: Navigating Growth with Risk in Mind.
Continue the conversation at the 2025 Future of Payments Symposium. View the full agenda.
NEACH - New England Automated Clearing House Association is a neutral, member-focused advocate. Our role is to give you the intelligence, context, and connections you need to make informed strategic decisions. We bring together industry leaders, policymakers, and innovators so you can evaluate innovation through the lens of your institution’s mission and market strategy.
NEACH launched the FinTech Inclusion and Exploration Initiative to help members harness the power of FinTech partnerships. It began with our Payments Program & FinTech Relationship Survey and now continues with the release of our FinTech Shark Week podcast series. We’re keeping the conversation going at our upcoming Future of Payments Symposium.