Navigate a community bank towards a fintech future

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Community banks have more customers and fuller deposit accounts than ever before, but many still find themselves a bit at sea when riding the digital wave. Big banks, Big Techs and fintechs are all revolving around. Some come as friends and others as potential enemies.

The exploitation of digital technologies will be crucial for survival. But moving a community bank beyond current services to those powered by fintechs isn’t necessarily easy or risk-free.

The disruption potential of fintechs has been clear for years, but not the urgency to engage with new technology partners. While a watch and learn strategy had its benefits, the pandemic and the pace of fintech innovation has ended the game of waiting and turned it into a call to action. When Big Techs and Big Banks start talking about building great banking apps, it’s time to take action.

Community bank leaders need to be clear on strategy and able to assess the best approach for their bank. Should they partner directly with fintechs to create new products and services, or improve their current offerings? Should they be working with major vendors who offer technology interfaces that hover over existing technology and use APIs to access fintechs? What are the AI ​​and machine learning use cases that are moving the personalization dial for their customers? What if you took a more indirect route and offered banking as a service (BaaS)?

A key decision maker that you borrow from can be related to size and resources. Some regional banks, such as Lincoln Savings Bank and Cross River, have chosen to be a technology provider that offers small community banks the ability to connect to their systems. It is an approach that helps small community banks overcome the size hurdle by letting the larger regional bank take care of issues such as supplier selection.

Alternatively, BaaS means sharing the banking infrastructure and opening up its APIs to provide a path for third-party fintechs and other non-FIs to build banking services. For smaller banks, this is a potentially profitable way to stem the rising tide of fintechs. There is a plethora of additional technologies they could adopt, from AI for fraud detection and customer identification to machine learning for better product recommendations.

Regardless of the approach, when reviewing all of these decisions, community bank leaders need to focus from top to bottom on digital innovation and leave room for experimentation in order to get the right solutions to the right. price.

Find the right fintech partners

While there are some truly innovative fintech start-ups, the reality is that scaling up is more likely to provide the financial and human resources and experience of the partner, supplier, or co-creator process. . It is not uncommon for fintech startups to run out of money, especially if they are in fundraising mode.

Obviously, there has to be a technological adjustment. Whichever approach you choose, the technology should adapt as seamlessly as possible. But in today’s ever-active digital world, don’t underestimate the importance of shared ethics and aligned values. Culturally, fintechs can have difficulty integrating with banks. Many would argue that banks are not nimble or innovative enough, while banks fear fintechs will comply with regulatory guidelines or new legislation.

Although it is not absolutely necessary to restrict the selection of suppliers in the United States, it would be preferable if the voluntary certification program for technology companies evaluated by the FDIC came to fruition. Certification would do the heavy lifting in terms of due diligence, which would reduce the risks of a fintech partnership.

Once you’ve decided where to deploy or engage, look for innovative technology that will speak to your bank’s specific community and address any issues they may be experiencing.

Choosing to lead your bank into a fintech partnership is a great approach, but it should start with a clear strategy and be customer-centric. To go from rowing to swaying the boat without capsizing, senior management must take the lead while empowering their teams to innovate and truly deliver. If last year has shown anything, it’s that standing still is not an option.

Helen Panzarino is a banking innovation consultant, educator and author.


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