How FinTechs finally found allure in community banks
The stereotype is that FinTechs play big. Really big. Only big. Big-dreamin’ entrepreneurs cruise Silicon Valley’s Sand Hill Road in big-money sports cars, looking for big-time venture capital so that they can finally, finally play ball with the big dogs of the banking world. Community banks? (Insert laughter here.) Don’t make Mr. Big Disruptor spit out his organic kobe burger all over his Armani sport jacket.
Yet in 2017, it doesn’t take much in the way of insight, or examples, to dump that mental picture in front of a big old wrecking ball. For as they aim to grow their outfits, today’s FinTech players now look beyond the biggest or most expansive financial institutions. As it turns out, FinTechs and community banks make for some amazing partnerships.
Witness Oklahoma’s Citizens Bank of Edmond, an institution with $252 million in assets. It has a rich past (predating Oklahoma statehood) and likely a richer future as it works with a FinTech to open an automated bank depot in downtown Oklahoma City. Its nickname? “Unbank.”
“After months of research, we’ve decided to launch our first ‘unbank,’” says Jill Castilla, Citizens president and CEO. Traditional lobby services will be available, “but it’ll all be done electronically [via] interactive teller machines.”
Citizens will also debut America’s first cash management machine and establish video conferencing in two branches so customers can “meet” specialists based in the bank’s main branch. That branch at 1 E. 1st St., by the way, is on the National Register of Historic Places, meaning that Citizens makes history forward and backward.
Citizens is now 116 years old, “and it’s our mission to remain independent and relevant for the next 116,” Castilla says. “To do that, we must stay at the forefront of technology to retain and earn new customers.” (How it will feel for Castilla to become the nation’s first unbank president and CEO remains to be seen.)
Community bankers also recognize that FinTechs could give them an edge in capturing Millennials and Generation Z consumers. These attractive, growing demographics are expected “to transact almost exclusively from their electronic devices,” according to Thomas L. Frale, Jr., director of business development for RLR Management Consulting Inc.
The big picture unfolds in reports such as “Growing Together: Collaboration Between Regional and Community Banks and Fintech.” That October 2016 study from Manatt, Phelps & Phillips LLP and Mergermarket found that 84 percent of responding community banks had already met with a FinTech on a possible collaboration. And nearly nine out of 10 [89 percent] said they believe these partnerships will prove essential in coming years.
While some larger financial institutions see FinTechs as rivals or inferior to in-house initiatives, many community banks are open to the innovations alliances can bring. “We’ve never seen FinTech as the competition, but rather an opportunity for collaboration and innovation,” says Chris Tremont, executive vice president of virtual banking and strategic partnerships for Radius Bank of Boston, Mass. “Partnering allows us to offer our clients products and services they want—often quicker and better than we could if we built them on our own.”
The $850-million asset bank has struck five separate FinTech deals over the last four years to develop services in mobile payments and investments, along with student and marketplace lending. One of Radius’ most successful partnerships is with the online investment firm Aspiration. This led to Aspiration Summit Checking, a high-interest account that customers can open and manage entirely online, Tremont says. While it does not carry the Radius imprimatur, Aspiration Summit was named Money magazine’s best checking account for 2015-’16 just months after its launch.
For Radius Banks’ Boston neighbor Avidia Bank, integrating technology from cloud-based payments provider linked2pay enabled it to offer commercial clients a business-to-business mobile payments service starting in 2015.
Avidia’s digital banking strategist CarrieAnne Cormier says that since that first pairing, her bank has “partnered with quite a few FinTech companies to power our payment technology [in] everything from payment processing to card and payment network sponsorship.”
Avidia now plans to process card and ACH payments through email, text and interactive voice response to reduce risk and offer more payment options; as linked2pay’s bank partner and originating depository institution, Avidia hopes to white label and sell this service to other banks in cooperation with the FinTech vendor.
“Some community banks look at FinTech solutions for a particular niche that they already perform well in,” notes Frale, who’s seen examples in customized treasury and property management as well as healthcare. “Couple that technology with strong customer service and you have a loyal client.”
Speed to slice the red tape to shreds doesn’t hurt, either.
“We’re able to be nimble and scrappy and when working with partners and brands, that’s the greatest asset we can bring to the table,” says Castilla. “We don’t operate bureaucratically and decisions are made quickly and efficiently. At the pace technology advances these days, we have to act fast and be willing to take the risks for the great reward.”
Cormier agrees that FinTechs are attracted to banks like hers because “they won’t find the same series of corporate layers as you do at a large financial institution. We’re able to take in new ideas and act fast on opportunities.” She believes this in turn allows FinTechs to focus on their technology rather than partner politics and bank regulations.
While opportunities abound, community banks with limited resources and reach should choose carefully when considering potential FinTech partners and projects. Notes Frale: “They must know their demographic makeup now as well as in the future to effectively partner. Don’t develop something that looks cool but isn’t really applicable to your clients.”
Likewise, FinTech hopefuls with big ambitions might be advised to slow down. Then, dare to think small. For as smart competitors and their partnering banks are proving, big bling comes in small packages.
Karen Epper Hoffman has written about banking and technology issues for nearly a quarter century. Her work has appeared in American Banker, Bloomberg Businessweek and Financial Times’ The Banker. She also speaks at and moderate panels for industry conferences. She lives in Olympia, Wash.