Community Bank Success is Contingent on Embracing Technology Based Solutions
by Wayne Brown
Community Banks are discovering the advantages of partnerships to build a competitive advantage. The rapid evolution of technology impacts nearly every industry, especially financial services.. As FinTechs continue to siphon consumers for all kinds of financial services, banks must take new approaches to remain competitive and relevant in a digitally connected world. The decline of bank deposits have a direct impact on the ability to issue loans etc.
Historically, consumers never strayed far from their primary banks for financial services. From checking and savings accounts, to obtaining loans and financial advice, consumers only trusted their banks to provide financial services and counsel. Today, consumers are much more open to receiving financial services and advisory from non-bank providers. In banking, this phenomenon of losing customers to new technology rivals is known as “unbundling.”
The industry may look a lot different today when compared to decade ag but that doesn’t mean banks are at a total loss. The financial services industry is complex and highly regulated for good reason, as fraud and risks accelerate. It can be difficult for non-bank organizations to execute financial activity without a bank powering those kinds of transactions on the back-end. Despite their popularity among consumers, FinTech companies have yet to prove to federal regulators that they are secure enough to receive the kinds of charters that could enable them to truly compete with banks. In order to offer their customers the best possible experience, most FinTechs partner with financial institutions for the infrastructure, processing, and regulatory expertise required – enabling them to focus on things like design and user experience.
This is a win for community banks. FinTechs like to move fast, and it’s often difficult or even impossible for these companies to reach large Wall Street banks and get the support they need. Even if they’re able to get in touch with the right people, it could take months to get through administrative processes and implementation with a large bank. In contrast, community banks are able to get FinTechs up and running with the services they need much faster.
It’s an exciting and lucrative new business model for community banks, but in order to deliver the kind of services these new FinTechs require, community banks may find it best to partner with other FinTechs themselves. It’s a two-pronged approach – FinTech providers who specialize in IT infrastructure can bolster the bank’s technology in order to reduce processing times, streamline operations, and introduce greater efficiency. This in turn enables community banks to offer consumer-facing solutions.
The next decade demonstrate the trend of continued growth with community bank and FinTech partnerships. Consumers want the same product, whether banking with a large asset bank or the community bank on main street.
Wayne Brown is the Managing Director at the Walker Group, a bridge between FinTech and financial institutions, working with FinTech companies and banks to find and create mutually profitable opportunities. Their varied market segments enable them to identify synergies and opportunities to stimulate growth, which includes identifying new products and services, building a strategic plan, or entering new markets. For more information about The Walker Group contact [email protected].