FinTech for Community Banks: The Key to Survival

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FinTech for BanksWhen we speak about FinTech disruptions we refer to the FinTech era that started around 2008 with innovations like blockchain, cryptocurrency, online lending, emergent finance apps and open banking. The more ubiquitous technologies of machine learning (ML) and artificial intelligence (AI) help financial institutions analyze data, predict customer behavior, and customize financial services. They also help financial institutions predict and deter fraud, protect customer data, augment customer support, streamline operations and, altogether, make their operations more convenient, friendly and effective. CFOs use these innovations to cut operational costs, manage risk, adhere to regulations, reduce error-rates by employees and make better investments. The benefits are clear: financial institutions that adopt digital technologies could increase their annual revenue by nearly 4%, according to Accenture. If you want to understand and respond to your customers’ needs, digital technologies or FinTech for Community Banks help you do it faster, cheaper and more conveniently than ever before.

Examples of different business categories FinTechs partner with today

FinTech companies partner with businesses across different industries to offer innovative financial solutions and to improve their overall customer experience.

Banks and traditional financial institutions, for example, offer products such as neobanks with digital solutions for transactional banking, investing, lending and more; digital-asset or crypto-payments networks or exchanges; and banking utilities for seamless cross-border payments.

Platforms in technology use AI, big data, and encrypted blockchain technology to secure their financial transactions, while digital banking and mobile services help them manage their money and send or receive funds. Other digital apps simplify money movement across their operations.

With retail, the goal is to make payments more convenient. Retailers employ FinTech innovations such as mobile wallets, point-of-sale financing loans, contactless payments and special payment apps for more personalized, faster and cost-effective services. Large corporations embed banking-as-a-service (BaaS) platforms, where they offer their own banking functionalities to attract new customers and grow their revenues.

Impact of FinTech on traditional financial institutions

There’s a plethora of digital tech that financial institutions could adopt, from AI for fraud detection and customer identification to machine learning for better product recommendations. But having your financial institution powered by FinTech is not necessarily without its risks. In the ICBA FinTech Survey, 23 percent of respondents confided concerns about the cybersecurity risks of FinTech, while issues of data privacy, BSA/AML compliance, fraud risk and vendor management followed closely behind.

To mitigate these risks, financial institutions need to invest in the right people and processes to oversee and navigate their various FinTech channels, experiment with different FinTech solutions for best fit with their communities, implement and regularly run a comprehensive monitoring process of their internal FinTech activities and performance, and conduct independent audits so that management can measure the impact of  FinTech products. They also need to be clear on strategy and able to implement the best customer-centric digital approach for their organizations.

Community banks that adopt FinTech strategies outperform their peers

Is FinTech worth the investment?Community Bank FinTech

Community banks face significant challenges. The emergence of digital solutions reduces traffic at their branches, and all banks face competition from large companies like Amazon, Apple and Walmart that could upend mainstream banking.  Smaller local banks are forced to adhere to particularly heavy regulatory compliance, while they’re threatened by generational shifts and changing consumer preferences. Statistics show that community banks are in decline. To survive, these banks need to not only broaden their base and expand existing products but also innovate to differentiate themselves.

How can community banks do this in a digital world?digitial-banking-FinTech-e1678135923918-edited-1 (1)

By following the example of commercial banks that thrive by embracing FinTech. Certain large investment banks, like Goldman Sachs and Chime Bank, accept cryptocurrency. Other banks have replaced ATMs with ITMs (interactive teller machines) to help customers perform even more tasks digitally. Large banks, like JP Morgan and Standard Chartered, operate in the metaverse.

Community banks need not go that far. But the essence of banking is to improve customer experience. FinTech strategies, such as developing your own mobile banking apps or providing customers with a user-friendly omnichannel experience populated with automated chatbots, help community banks stay relevant and thrive.

Hartman can help your bank develop and implement a FinTech strategy

Choosing to lead your bank into a partnership with FinTech is a great opportunity, but it needs to start with a clear strategy. Hartman Executive Advisors can help you align your IT strategy with your business strategy, create a business case, perform proper diligence and execute implementation to gain traction quicker and more efficiently.  If you are a financial leader who is looking for more information, please contact our experts to schedule a free consultation. 

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