Financial services and the power of partnerships for global success
The financial services sector has seen much in the way of disruption in recent years. However, as political change in the Western world leads the global economy into unchartered waters over the coming months, it is possible that the biggest set of changes are yet to come.
Many financial firms – particularly those looking to grow internationally – will have to rethink their long term plans in order to navigate the impending global state of flux. Their saviour, however, may come in the form of strategic partnerships.
Specifically, partnerships offer a valuable route for companies wanting to expand overseas, whilst also wanting to limit the risks associated with such development at a particularly volatile time in the global outlook. By collaborating with another business, rather than attempting to go it alone, companies stand to benefit in a number of areas.
Faster, cheaper access
The costs and time associated with expanding a financial services business overseas are significant. Due diligence, regulatory compliance, capital, identifying and hiring local talent, amongst the various other issues companies have to consider during this process, all require time and money.
Cross-country partnerships enable businesses to gain access to resources that they would not otherwise have available to them when entering new markets. By tapping into the existing relationships of their partners – both suppliers and customers – and adopting existing processes, companies can ease their workload when looking to enter new markets.
Last year, Ingenico Group, a France-based leader in seamless payments, announced a partnership with Alipay, the world’s leading payment platform, enabling Chinese tourists visiting Europe to use Alipay to pay easily with Ingenico powered merchants.
The agreement enabled the Chinese business to tap into Ingenico’s existing merchant relationships, giving the company access to retailers across Europe more quickly and efficiently than if they had attempted to establish them themselves.
By reducing the costs and time invested, the overall risk associated with establishing a presence abroad is somewhat diminished. This enables businesses to enter new geographies, test their proposition and remain or exit as appropriate without investing excessive funds or resources to do so.
Local expertise
Developing a solid understanding of an international market is a detailed, time consuming process. Before expanding overseas, financial businesses need to look into whether their proposition will translate in a new market and a local partner can help speed this up by using their own experience and specialist knowledge to inform the process.
Last year, China’s leading payment gateway, PayEase, announced its partnership with KG Inicis, a leading South Korean payment provider, to provide more convenient and secure payment services for businesses and consumers across both countries.
The deal was mutually beneficial to both businesses in that it helped each party gain increased market share in the other’s market creating a cross-border network of services. By aligning their strategic interests, both businesses were able to gain access to new, potentially complex environments far more easily that if they had attempted to do so on their own.
Entering new geographies with the support of a local brand will also make companies more familiar and accessible to potential customers by increasing the likelihood that customers will trust their business and therefore use their services or products.
Plug in new skills
Strategic partnerships are also an effective way of gaining new capabilities by plugging into another business’ skill set, whether that be technical, regulatory or digital. The best relationships of this nature work to the advantage of each party, but also benefit the customer as the end user.
This is often seen in partnerships between fintech innovators and more traditional players such as banks. Fintech businesses are often able to offer a more flexible, agile approach to financial services, whilst the banks are relied on for their strong customer base and credibility.
A recent example of this is the agreement between US-based First Data, a global leader in commerce-enabling technology, and Bancolombia.
The partnership will focus on improving and diversifying services for business owners in Colombia by integrating and improving their technology platforms. First Data will aid the modernisation of commerce in the Colombian market by introducing the latest payments innovations from Europe and the United States, whilst Bancolombia will play a key role in First Data’s strategy in Latin America.
By ensuring the businesses’ strategic interests are aligned both players are able to offer an improved service to its respective customers, whilst simultaneously increasing business for themselves.
Mutual benefits
Whilst the positives from establishing partnerships in new geographies are evident, it is important that such agreements are not entered into without careful consideration. Both parties must first ensure that their strategic objectives are aligned and their business models are complementary to one another.
Potential obstacles need to be identified and evaluated beforehand to determine whether they would prove detrimental to the relationship. Important issues to consider include cultural differences, leadership structure and clarity around control, performance objectives and a long term vision based on a clear business case.
Consistent communication and management is key to ensure a partnership flourishes, both whilst the deal is going through and after completion. Such a relationship should be mutually beneficial for both businesses to ensure the commitment of both sides to the deal.
As we enter a new era of political and economic uncertainty it seems inevitable that the already popular trend of international partnerships in the financial sector will continue to grow as businesses look to new routes to global expansion. Well planned, tactical relationships have already shaped the direction of the sector over recent years and I expect to see more of this as we look to the future going forwards.
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