Innovations in digital banking are moving at breakneck speed, forcing many community banks to plant their digital flag in the sand. In short, your bank can be an early adopter, fast follower, or late adopter of digital technology.
Banks that aren’t in one of the first two categories risk being left behind in the digital banking revolution. However, most community banks don’t have the internal resources to develop new digital banking products themselves.
To overcome this challenge, many community banks are forming strategic partnerships with fintech companies that specialize in creating digital banking products and services. This can be a win-win for both banks, which lack the necessary technological expertise, and fintech firms, which often lack the funding, customer relationships, and trust that most community banks enjoy.
For example, a community bank in Florida has partnered with a fintech provider to offer small business loans with a 10-day application period. This has cut the bank’s loan application turnaround time in half, giving it a strategic advantage over other banks in its market area.
In a recent survey of community bankers conducted by the American Bankers Association, seven out of 10 bankers said they plan to introduce digital small business products sometime in the next year. Fintech firms could be a useful conduit for offering these products.
Highly Collaborative Partnerships
As you consider forming partnerships with fintech firms, keep in mind that these tend to be more complex than most vendor relationships. They are usually highly collaborative partnerships in which the fintech may receive access to the bank’s core systems and operations.
This makes performing thorough due diligence on potential fintech partners crucial. You must ensure that they are financially sound and have sufficient security and compliance processes in place to satisfy bank regulators. Also, be sure to carefully check a fintech’s references before entering a partnership.
Generally speaking, the younger the fintech firm, the higher the possibility that they have a less-robust security and compliance environment. If you’re considering partnering with an early-stage fintech, make sure their CIO is experienced and their risk management system is adequate.
Don’t Play Digital Catch-Up
Determining how your bank will stay relevant in the new digital banking world of the 21st century is a critical decision you should make sooner rather than later. Otherwise, your bank could be playing digital catch-up for years to come.