How to make channel marketing work in FinTech

In strategy discussions with FinTech and InsurTech clients, the debate about direct acquisition versus working through intermediaries always comes up.

And for understandable reasons. Building a business one customer at a time is hard and requires a regular, and often significant investment in marketing, whereas if you can onboard a large introducer, you only have to concentrate on servicing the leads - or do you?

Working through intermediaries is not without its own challenges and here we look at some of the fundamentals of making a partner marketing strategy a success.

Types of intermediary channel

In FinTech, we typically see four types of intermediary channel:

• Brokers - either traditional finance and insurance brokers or their new digital equivalents
• Introducers - most often the providers of other professional services to the customer e.g. accountants or IFAs
• Affiliates - a business or organisation with a large customer franchise that can offer the product as a complement to its own, possibly on a white-label basis e.g. a bank, insurance company or professional body
• Marketplaces - an emerging concept seen with digital banks and businesses like Xero. The evolution of open banking is going to make marketplaces more common.

Attractions of channels

These channels have five major attractions for the product owner or ‘producer’:

1. Customer access - using the partner’s franchise to get to the end user more easily
2. Presentation - using the partner to suggest and explain the product to the customer
3. Endorsement - leveraging the implied endorsement and recommendation that comes from the partner “stocking” the product
4. Adding value - using the partner’s product in combination with the producer’s product to add another dimension to the value proposition
5. Revenue - the partner promoting sales and in many cases collecting the money from the customer and paying it to the producer less any agreed margin.

So what is there to lose?

The first challenge is the sheer amount of time it takes to get a partnership agreement in place. We’ve seen discussions literally run for years and then deliver disappointing outcomes at the end of them. Often the product owner has little influence over the priorities and timetable of the partner and has little choice but to patiently, and politely, try to keep the project moving along.

There is then the need to motivate the channel in order to reach users. Commission or revenue share is only one dimension of this, but let’s consider this first.

One of the principal trade-offs with a channel strategy is the impact it can have on profitability. As a general rule, the stronger the brand of the product owner, the greater the share of the profits it can retain.

A broker will be keen to have a strong brand in its portfolio of options. A lesser known brand will have much less influence with the customer and have to pay a larger commission to get its share of attention from the broker. The most important bargaining chip any product owner can have is a strong franchise with the channel’s customers. Weak brands struggle to achieve distribution and usually have to pay handsomely for it.

In addition to revenue, there are training, product support, confidence in the product and ease of use issues to grapple with. Failure to address these can lead to all the effort put into negotiating the agreement withering on the vine.

Another issue is that the intermediary will often regard the end customer as their own and we’ve seen this become a major battleground over the years. The issue of who owns the customer is not just an academic one since it fundamentally affects the product owner’s ability to retain and upsell. Complex rules of engagement are often needed to appease everybody, particularly when the product owner is also engaging in direct acquisition. Cross channel competition can lead to a race to get to the customer first.

Making your channel marketing successful

Maybe going directly to the end customer is the easier option after all! Not necessarily. but to make channel marketing work you need B2B marketing skills and a two stage approach: the first to get the partner on board and then to work with the partner to put the product in front of the customer. Our recommendations for anybody planning a channel marketing approach are as follows:

1. Have a clear understanding of the partner’s strategy and needs. If you are the weaker brand, or the most in need, it is vital that you align your pitch to the partner’s direction of travel.
2. Have a compelling positioning for your product. Help the partner understand why it is going to be exciting for them to have your product in their arsenal and how it will give them a competitive advantage. This also goes with knowing where your product fits with the partner’s existing range.
3. Know what your competitors are doing. You should expect that your chosen partner will look to see what other options are on the market before committing to you.
4. Work out the economics of your partnership for the customer. The more layers in the distribution, the more players there will be wanting to take a margin. Care needs to be taken that it doesn’t make the product too expensive for the customer or that it wipes out all of the profit for the producer.
5. Identify the decision makers. Decision making lines can be long and complex, particularly in a large organisation and working your way to the top takes persistence and patience. Often, the only way to start is to find one person in that organisation who has a problem or an objective that your product will solve. You then need to use him or her as your sponsor to bring all the right people into the conversation.
6. Be willing to tailor your products to the partner’s requirements. This can be a tricky one because, on the whole, you won’t want to manage lots of different variations of your product, but this again comes down to the power in the relationship. If you need the partner more than they need you, it will often be easier, and therefore more successful, for you to tweak your processes and systems than it will be for the partner to adapt to you. Ideally, you will find ways of tailoring the product which are highly valued by the partner, but involve little extra cost for you.
7. Have an after-sales support programme. The partner will expect that you will fix any customer issues efficiently, without damaging their customer relationships and without diminishing their own products. The terms of the agreement will determine whether after-sales support is provided in the partner’s brand or as your own.
8. Have a relationship management strategy. The partnership is a relationship, perhaps the most important one you’ve got, so it’s vital that you plan to keep in touch, respond to feedback and nurture the relationship onto its next level.
9. Make sure there is alignment between the marketing and sales teams on strategies and plans to promote the partnership. Far too many times, we have seen intense effort over many months being put into agreeing a partnership and then it fizzle out because the channel isn’t enabled or motivated to deliver enough volume to make it worthwhile continuing. If both parties are serious, you should be looking to develop a 3-5 year channel plan together.

If you'd like help with your channel strategy, including identifying and negotiating with potential partners, we'll be pleased to share our experience. Please contact us.