Dynamic landscape

The financial industry is changing rapidly; traditional players are going through digital transformation and new companies are out to disrupt the market.

For the incumbents, it can be a great challenge to align risk-driven internal procedures with the fast-moving mindset of FinTechs. On the other hand, FinTech startups, as well as tech companies with an interest in finance, face the same challenge but from the reverse perspective: They operate in highly regulated environments, while their focus is on technology and moving fast. Incumbents can help them face this challenge.

Mythical animals are rare

FinTechs are often regarded as challengers and indeed, some FinTechs follow their own commercial path and reach unicorn status. However, from our experience and research we know that most FinTechs actively look to collaborate with incumbents. They add value to the proposition of the incumbent or build products on the platform on the incumbent, making that platform stronger and more attractive. For FinTechs the advantage is obvious. The incumbents still have large client bases and an urgent need to innovate to stay competitive. Collaborating can therefore lead to a win-win for the FinTech and the incumbent.

Different types

We have identified four types of FinTech partnerships:

1. FinTech as a front-end solution
2. FinTech as a service
3. FinTech as a new brand
4. FinTech as an investment

When FinTech is used for a front-end solution, the incumbent collaborates with the FinTech on e.g. a mobile app. The app will have the look and feel of the incumbent’s brand, but the FinTech’s technology makes communication with the incumbent smoother and more customer-friendly.

FinTech as a service means that the FinTech develops an IT solution or tool that is used in the internal processes of the incumbent. An example of this would be a transaction-monitoring tool based on artificial intelligence (AI).

Another type of partnership is FinTech as a new brand. An incumbent can collaborate with a FinTech to distribute its products (e.g. an insurance product) under a new label. Customers will see a new product with its own look and feel, but that product is powered by the partnership of the incumbent and the FinTech.

The fourth group creates their own value proposition. For funding, such FinTechs may reach out to incumbents, venture capital and/or private equity. Collaborating is in that case an investment.

No surprises

Whatever the type of partnership, the combination of technology and regulated markets mandates that any collaboration between a FinTech and an incumbent should be based on a proper legal and regulatory risk assessment. This includes risk identification, scoring and a follow-up action plan.

FinTech Ins & Outs: an X-ray of your envisaged investments and partnerships

The Dentons Amsterdam FinTech team is here to assist you with your risk assessment and action plan. FinTech Ins & Outs focuses on four key legal and regulatory areas:

1. Financial regulatory
2. Data advisory
3. IP
4. IT

With the support of our specialist colleagues (such as corporate, tax, competition) just a phone call away.

We provide red flag or extensive deep dive reports, taking your risk appetite as a starting point. Key questions will always be:

• Are the relevant regulatory authorizations in place?
• Is there a risk of regulatory enforcement by e.g. financial or data protection authorities?
• What is the overall score on regulatory compliance?
• Is the intellectual property well protected and recorded?
• Are the vital IT systems robust and well documented (including through contracts)?
• What measures can mitigate (regulatory) risks and when do such measures require implementation (pre- or post-closing?).
• What net risks remain?

Dentons’ Amsterdam FinTech team

Our team is unique for the Dutch legal market. With specialists in the legal areas that are key for the FinTech industry, we offer you a one-shop-stop product. We are passionate about disrupting the legal industry, and we will work together in a way that works best for you, making use of technology, in a way that is effective and cost-sensitive.