Banks and Fintechs: Guideline to Facilitate Cooperation

Frank Mehlhorn

At a time when banks are reviewing their outsourcing models and deciding to bring many capabilities back in-house, one type of outsourcing is becoming increasingly important: cooperation with fintechs. What is behind this trend? What challenges and opportunities does it bring and how can the Association of German Banks add value?

In the summer of 2018 the BdB highlighted in a position paper that cooperation between banks and fintechs is an increasingly important part of both parties’ business models; this cooperation usually takes the form of an outsourcing arrangement. However, in order to truly take advantage of the various cooperation models, current onboarding processes must be significantly improved. To this end, the Association of German Banks, together with a group of its bank and fintech members, has developed a guideline that streamlines the “regulatory” part of the onboarding process to enable more transparent and efficient cooperation. This should benefit not only banks and fintechs but also customers, supervisors and auditors.

Streamlining and accelerating onboarding

There is no doubt that every bank-fintech cooperation must fulfil the appropriate regulatory requirements, regardless of whether the product or service is aimed at customers or internal efficiency. However, the current bank processes for communicating and ensuring the fulfilment of these requirements by fintechs are not fit for purpose: typically, fintechs are faced with hugely variable and complex questionnaires of between 70-700 questions. This results in both fintechs and banks devoting large amounts of time and energy to identifying and fulfilling requirements that are often disproportionately high in relation to the actual risk to the bank. Ultimately, time-to-market is severely affected; while “technical” integration can be completed in a matter of weeks, “regulatory” onboarding often takes up to 12-18 months.

In order to close the gap between “regulatory” and “technical” onboarding, there is at the core of the newly developed guideline a simple two-step model in which four levels of concrete regulatory requirements are derived from a straightforward risk assessment.

The risk assessment involves the completion of 18 questions which assess the specific nature of the cooperation across various risk categories such as service provision, IT security and business continuity. This results in the cooperation model being assigned a risk maturity level, which in turn determines the level of requirements that must be met by the fintech. The concrete requirements can be found in a catalogue in which several categories of requirements that must be fulfilled in every outsourcing arrangement are each detailed in four levels.

Basis for further exchange and standardisation

The guideline should significantly improve cooperation in two fundamental ways. On the one hand, it provides banks with greater security in the interpretation and application of the proportionality principle in the context of bank-fintech outsourcing. On the other, the simple approach, clear structure, and transparency of the model provides fintechs with a far better insight into what is required of them and why. This enables them to prepare more effectively for cooperation with banks. Both together allow for a far more efficient and effective onboarding process and a faster time-to-market.

The more widely the guideline is applied in practice, the easier it will be to achieve its goals of more transparent, easier and faster cooperation. Therefore not only banks and fintechs, but also regulators, supervisors and auditors were involved in the development of the guideline. This provides a good basis to achieve further standardisation within both Germany and Europe. With that in mind, The Association of German Banks welcomes further discussion with all parties involved.


Juliane Weiß

Pressesprecherin für Regulierung der Finanzmärkte, Einlagensicherung, Finanzbildung, Steuern, Geldwäsche und Finanzfritzen/Instagram

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