This article is the first in a two-part series on bank-fintech collaborations, based on an exclusive study conducted by Bank Innovation and INV Fintech.

When it comes to bank-fintech collaborations, banks are finding more failure than success. That’s according to a study by Bank Innovation and INV Fintech, a startup accelerator, released today.

The 2019 State of Banking Innovation Survey revealed that only 43% of financial institutions rated past collaborations with startups as successful. At 63%, the figure was slightly higher for fintech startups rating their collaborations with financial institutions, but still far below what some media coverage would suggest.

Still, 2019 already has seen significant activity around bank-fintech partnerships. Just in the last few weeks, HSBC partnered with Identitii to create an invoicing tool for corporate clients, Cross River Bank acquired business-banking platform seed and Betterment announced a new checking account in partnership with nbkc bank, an INV Fintech ecosystem member.

Banks also continue launching initiatives to partner with startups. BMO Harris bank – also an INV Fintech ecosystem member – expanded its in-house accelerator program to have a national reach, and BBVA launched its Open Innovation Accelerator to “foster even greater success among the fintech startup ecosystem it engages with.”

Beyond these headlines, however, the truth is closer to what many bank executives and startup founders are painfully aware of: collaborations pose significant challenges, and the two sides are not always aligned.

The study, conducted last month, garnered responses from more than 200 industry participants. Its results are especially relevant given the extent to which bank-fintech collaborations already are taking place. In the survey, 75% of financial institutions stated they have partnered with fintech startups and 61% of startups stated they have worked with a financial institution.

So, why are bank-fintech collaborations such a timely issue to address?

Even with a low success rate, the survey confirmed that financial institutions of various sizes and fintech startups with different focus areas are aware of the need and see a benefit from collaboration. When asked what the main source of innovation will be for their company over the next three to five years, 64% of financial institutions expressed the belief that it will be a combination of internal and external sources – mainly in the form of startup collaborations – with an additional 27% stating that it will come primarily from external sources.

This belief was echoed on the startup side, where 73% of respondents expressed having a business strategy that relies on working with financial institutions, either through a B2B or B2B2C product proposition or through a bank of record-type relationship.

Furthermore, both FIs and startups plan to collaborate to an even greater extent going forward. The survey found that 77% of banks and credit unions said they have plans to partner or collaborate with fintech startups over the next two years, with an additional 20% considering such ventures. On the startup side, 70% stated they have plans to either create or expand partnerships with financial institutions, with an additional 13% considering the option.

In order to understand how to better enable bank-fintech collaborations, the study asked both sides to identify the key challenges to overcome. Not surprisingly, the answers differed slightly between FIs and fintech startups. From the FI perspective, the top two challenges were security risk (36%) and their company’s standards for regulatory compliance (23%). For startups, the top two categories were the financial institution’s standards for regulatory compliance (40%) and a cultural mismatch with the financial institution (33%).

Interestingly, even while both agreed on regulatory compliance as a major hurdle, no financial institution selected “cultural mismatch with startup” and no startup selected “security risk.” Perhaps this reveals an underlying issue: startups do not appear to be fully aware of the importance of security risk for financial institutions, and FIs do not appear to grasp the importance of cultural fit for startups.

A better understanding of challenges on both sides is only the first step to “bridge the fintech gap.”

The next article in this two-part series will address general guidelines and best practices to enable and increase the success of bank-fintech collaborations, a core focus at INV Fintech and the main area of INV’s work with financial institutions and fintech startups in its program.

Rodrigo Suarez is the principal of INV Fintech, a NY-based startup accelerator program focused exclusively on financial technology. Financial institutions interested in joining INV Fintech’s ecosystem can learn more here. Startups that are interested in applying to INV Fintech’s Fall 2019 cohort can do so here.