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Navigating a community bank to a fintech future

Community banks have more customers and fuller deposit accounts than ever, but many still find themselves somewhat at sea when riding the digital wave. Bigger banks, Big Tech and fintechs are all circling. Some come as friends and others as potential foes.

Harnessing digital technologies is going to be crucial for survival. But leading a community bank beyond current services to those powered by fintechs is not necessarily easy or without risks.

The potential for disruption from 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 put paid to the waiting game and turned it into a call to action. When Big Tech and big banks start talking about creating banking super apps, it’s time to make a move.

Community banking leaders need to be clear on strategy and able to evaluate the best approach for their bank. Should they partner with fintechs directly to create new products and services, or improve their current offerings? Should they work with core providers who offer technology interfaces that hover above existing tech and use APIs to access fintechs?  What are the use cases for AI and machine learning that move the personalization dial for their customers? What about taking a more indirect route and offering banking as a service (BaaS)?

One key decider in which route you take may be linked to size and resources. Some regional banks, such as Lincoln Savings Bank and Cross River, have chosen to be a tech provider that offers smaller community banks the option of plugging into their systems. It’s an approach that helps smaller community banks overcome the size hurdle by leaving the bigger regional bank to deal with issues such as vendor selection.

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

Whatever the approach, when running through all of these decisions, community bank leaders must bring a top-down focus on digital innovation and allow room to experiment in order to get the right solutions at the right price.

Finding the right fintech partners

While there are some truly innovative fintech start-ups around, the reality is that a scale-up is more likely to provide the financial and human resources, and the experience of the partner, vendor or co-creator process. It’s not unheard of for fintech start-ups to run out of money, especially if they’re in fundraising mode.

Clearly, there has to be a tech fit. Whichever approach you choose, the technology has to fit as seamlessly as possible. But in today’s always-on, digital world, don’t underestimate the importance of shared ethos and aligned values. Culturally, fintechs can find it difficult to fit with banks. Many would claim that banks are not agile or innovative enough, while banks are concerned about fintechs running afoul of regulatory guidelines or new legislation.

While it’s not absolutely necessary to restrict vendor selection to the U.S., it would be preferable should the voluntary certification program for technology companies being evaluated by the FDIC come to fruition. Certification would do the heavy lifting in terms of due diligence, which would de-risk 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 solve the pain points they may have.

Choosing to lead your bank into a partnership with a fintech is a great approach, but it needs to start with a clear strategy and be customer-driven. To go from rowing the boat to rocking the boat without capsizing, senior management must lead from the front while empowering their teams to genuinely innovate and deliver. If the last year has shown anything, it’s that treading water is not an option.

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