Feb 21, 2017

Turning FinTech into WinTech: How smaller financial institutions can succeed with digital

Compelling digital offerings aren’t just a consumer expectation anymore. They are a necessity to stay competitive.

But many financial institutions, especially smaller ones, are stuck in a holding pattern—with too many confusing options and choices to grasp a clear sense of how to move forward. What’s the best way to harness new digital technology to deliver the desired results? How should you select the right partner? What key strategies lead to successful implementation?

If there remains any question that the FinTech revolution is disrupting the banking ecosystem, just ask Millennials: 73 percent believe innovation will come from outside the industry and 33 percent believe they won’t need a bank at all to serve their financial needs. 

With the current technology sprint, it’s often hard to make sense of it all. (The iPhone, after all, is only 10 years old.) Today, FinTech startups don’t compete with banks head-on but focus instead on specific services historically integrated within the bank’s core offerings. It can feel like death by a thousand cuts.

Let’s step back a moment and consider this from the customer’s perspective. Leading FinTechs are competitive because they focus on products and segments banks don’t serve well, such as micro-business lending, unsecured lending and roboadvisory. FinTechs also show particular skill at creating a frictionless, intuitive customer experience.  Many offer faster payment processing. Others provide simplified, instant business loan processing by connecting directly to information sources for verification, instead of relying on customers to gather and provide paperwork. 

In our view, partnering with innovative FinTechs instead of trying to develop solutions in-house is a no-brainer.  Jamie Dimon, CEO of JP Morgan Chase, described it well: “(FinTech partnerships) offer the kind of stuff we don’t want to do or can’t do, but there’s someone else who can do it.”

So what should smaller financial institutions do?

Many believe—wrongly, in our view—that digital innovation just can’t be achieved at their size. Or they mistakenly assume that the “traditional” customer will remain loyal based on the overall quality of personalized service. But sitting on the sidelines in the midst of industry change carries a huge risk: getting so far behind that it becomes hard to catch up. 

Smaller financial institutions can innovate as fast as the largest players, if not faster. They can make quicker decisions than their bigger counterparts and we have found that FinTech firms are willing to consider partnering with smaller player-- especially if their partner bank can serve as their proof of execution and as their “beta” bank.

Case study: How Cambridge crossed the tech bridge

Cambridge Savings Bank, a $3.2 billion institution in the Boston area, needed a retail investment solution. Initially it anticipated supporting its branch network with an in-house team of financial advisors through an alliance with a traditional broker/dealer.

But ultimately it decided to partner with SigFig, a roboadvisory startup, to solve customer demand for investment advice.  This approach had multiple benefits:

  • Greater control over service delivery
  • Significantly lower cost for customer,
  • Stronger competitive positioning versus larger financial institutions expected to offer similar products

In fact, Wells Fargo, US Bank and Capital One have since announced similar offerings, some with the same partner that Cambridge chose.

It was important to Cambridge to meet the expectations of mobile-first customers, while at the same time provide carefully placed human interactions. Seamless integration with the bank’s existing online banking platform was a must, since mobile is increasingly becoming the most used bank channel for a large segment of customers.

Implementation has proven highly successful. Customers have been enthusiastic in their adoption and it hasn’t been just Millennials: The average age of customers using the new advisory platform is 47.

Lessons learned from business earned

What were the keys to Cambridge’s success? If we were to write a “how to” manual for textbook implementation, there would be ten key takeaways:

  1. Define a digital strategy—and be bullish.  Cambridge’s goal is to be the most digitally advanced community bank in Eastern Massachusetts. They consider it important to reinforce that positioning. Others may look to flesh out certain products. But first, step back. Pick a customer- oriented strategy that will guide your journey. Without this, it’s easy to fall into the trap of chasing the latest “shiny object.”
  2. Build for Millennials and you’ll succeed with all age groups. Digital adoption and migration is happening across all age groups but at different paces. The lag between younger and older cohorts is shrinking—but experience with social media and bank technology adoption shows that what the 21-year-old consumer uses today, your 55-year-old customers will use three years from now. Develop for your younger customers, learn from that experience, and you will ultimately serve your broader base.
  3. Include the compliance team early in the process. Taking a regulation crafted in the early 1990s and interpreting it for today’s digital world is not easy. The compliance group will need time and will appreciate the upfront engagement.
  4. Select the right FinTech partner. Culture fit is critical. Spend time learning each other’s institutions. As with any partnership, the fit needs to make sense. Does the FinTech share the same commitment to the customer experience as your bank?
  5. Confront and discuss the obvious. FinTech firms operate at lightning speed through dedicated project management operations and agile processes—while banks are historically conservative and slow.  Both partners need to meet in the middle and work at a mutually comfortable and challenging pace.  Recognize that your partner needs you and your loyal customers, just as you need them and their technology. What’s more, you can learn from each other. Your bank will better implement projects, ranging from IT to product development, after learning agile project management methods from your FinTech partners.
  6. Drive the process by creating company-wide buzz.  You are about to embark on something really exciting. Get all your employees excited as well. Start communications early and keep the momentum going. It will result in better implementation and create enthusiasm that will impact your entire organization.
  7. Don’t settle for anything less than full integration with existing systems. At Cambridge, the initial response was, “I’m not sure that this can really be done...” But our FinTech partners found a way. It can be done: Don’t take “no” for an answer.
  8. Introduce your solution in stages. These include pilot, soft launch and full launch—and don’t be afraid to make changes on the fly. FinTech firms excel at testing “proof of concept” and then rapidly improving based on actual customer experience.
  9. Keep your brand front and center. It is what your customers trust. At Cambridge, the service carried the bank’s own branding as Connect Invest. If your FinTech partner values promoting their brand above all else, then you’ve chosen the wrong partner.
  10. Don’t stop innovating.  Again, it’s a journey. Take the first step in moving from an operating model (where products and processes are built and managed internally) to a more efficient model of utilizing “best in breed.” The payoff is significant.


David Kerstein is President of Austin, Texas- based
Peak Performance Consulting Group, which specializes in retail, community and business banking strategy.  He can be reached at dkerstein@ppcgroup.com.

Dan Mercurio is head of consumer and small business banking at Cambridge Savings Bank, a Boston- area community bank. He can be reached at dmercurio@cambridgesavings.com.

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