According to a S&P Global Report, 90% of surveyed banks that partnered with fintech companies said they expected to reach a double-digit increase in total deposits, far outpacing U.S. commercial banks of similar size. In the banking industry, technology has a major influence on who surfaces as the winners and losers. One of the simplest ways a bank can grow their deposits is through partnerships with fintech companies. Here’s why.
Tech-powered growth: enhancing banking deposits
Digital banking platforms: empowering customers
Without sufficient deposits by bank members, banks face a bleak future. Online and mobile checking deposits offer convenience, reduced transportation costs, better availability, the ability to consolidate banking relationships, and more. Consumers can efficiently manage their accounts, make payments, and even apply for loans through these platforms on their own schedules.
Customers conveniently access their accounts through advanced, user-friendly websites, supported by apps that assist them in locating what they’re looking for. The inclusion of smart and money-saving functions empowers them to manage their finances. With constant access to their bank’s information, users can monitor their accounts as often as they like.
Unleashing the power of data analytics and AI
Artificial intelligence (AI) in its broadest sense helps banks attract deposits in various ways – through robotic process automation, machine learning, predictive analytics and deep learning. The utilization of AI-powered chatbots and virtual assistants enhances customer service by providing prompt and helpful responses. Moreover, machine learning helps banks leverage analytics to convert best-fit prospects into loyal customers.
Bank managers deploy machine learning to identify growth opportunities, create targeted marketing campaigns, and personalize their offerings. In pilot testing conducted with multiple banks, McKinsey noticed that relationship managers who piloted client acquisition programs using machine learning had 9% portfolio growth over a 12-month period, in contrast to control groups who saw only 5% growth. Banks that adopted machine learning usually also retained and expanded their customer bases through value-added activities, innovation, and informed business decisions.
Strengthening security measures
Banks that run on digital platforms need robust security to protect customer assets. According to a report by LexisNexis, digital lenders are seeing a 143% year-over-year increase in monthly fraud. Fintech companies help you secure funds through innovations such as advanced encryption techniques, multi-factor authentication, and biometric identification systems. Voice biometrics, for example, analyzes more than 1,000 voice characteristics to authenticate users.
Bank managers also use machine learning algorithms to detect and respond to security threats in real-time. Their primary objective is to leverage technology to implement robust security measures, safeguard customer information, and mitigate the risks associated with cyber threats and fraudulent activities.
Fostering FinTech partnerships
Banks have distinct advantages over fintech companies. These include a broad customer base; a more stable and tested funding model; multiple touch points with their customers; and regulation. Fintech companies, on the other hand, outpace them with their speed to extend loans, their ability to attract top technology talent, and their significantly lower operational expenses. By forming partnerships with fintech startups, banks can harness their innovations to retain and expand their customer base, thus capitalizing on the best of both worlds.
Almost nine in ten financial institutions consider fintech partnerships to be important to their business, up from 49% in 2019. One of their most cited reasons for partnering with FinTechs was to increase their deposit account opening productivity. (The other two reasons were increased loan productivity and new product development).
Embracing technological advancements: shaping the future of banking
The percentage of small banks looking to grow their deposits soared to 72% in 2023 from 41% the previous year. Banks that want to get ahead need to maximize spend on technology, but small banks run on restricted budgets, posing a serious threat to their ability to compete. A more feasible option is to consider partnering with FinTech companies to employ their technology and drive deposits. Based on a survey conducted in 2021, nearly two-thirds of all banks and credit unions entered into at least one FinTech partnership since 2019 and attested that the partnership was crucial to their success.
Technology will remain front and center of the banking industry in the years to come. Banks that use technology well can enhance their business models, but it needs to start with a clear customer-focused strategy. Hartman Executive Advisors can help you align your IT strategy to your business strategy, create a business case, perform proper diligence and implement a plan to help you grow deposits. Contact the banking experts at Hartman Executive Advisors to schedule a free consultation.