Smaller US Financial Institutions Are Reaching A Fintech Turning Point

Change is in the air.

The relationship between financial institutions (FIs) and fintech can be very synergistic, rather than parasitic. American FIs are embracing that fintech is not their enemy.

Some of this is due to a change in mindset by fintech (and perhaps VCs) that partnering results in better outcomes at this point, than competing. At the same time, FIs realize that technology investment is critical, and simply put, they can’t go it alone.

Fintech has the role as facilitator, not a competitor; as a technology partner, not a challenger. Fintechs technological innovations can be used to help bank technology partners and clients to leverage their fundamental strengths, so they can build better experiences for their customers.

There are a number of fintech companies that now help smaller FIs punch above their weight. It’s making a tangible difference. Size has its advantages and we are seeing smaller FIs realize this as they see that they can be as competitive as they want to be against any size competition. Smaller players can be nimbler because their infrastructure is smaller and they can implement new protocols much quicker than big institutions. Plus, players from regional banks to local credit unions can work through core technology providers that can package a collection of fintech products that best serve them and their customers.

Data is beginning to play a significant part as community institutions embrace fintech. To compete with emerging digitally native competitors and ever-evolving consumer needs, FIs need to think of data differently. They should look to aggregate customer data, analyze it in real time, and provide front-line employees or channels with information to make the right recommendations for customers at the time of engagement. That can happen online or in a branch.

It’s not that FIs necessarily need more data or cleaner data, but rather, they need data to be enriched so that data can be turned into actionable insights that benefit the FI, and perhaps more important, the customer. Community financial institutions’ future success will rely heavily on collecting data, converting data to knowledge, and finding value in that knowledge. In the past, FIs were more concerned with economic scale and traditionally thought more customers in the branches automatically equaled more revenue. Now, the focus is more on digital, data analysis and getting the “right” customers, to create long-lasting, mutually beneficial relationships.

Smaller FIs have some distinct advantages over larger ones and they are starting to realize that. Bankers have begun to accept the fintech challenge and believe that with the right partners, who have the best solutions, they'll be able to compete against national and regional FIs, as well as the fintech challenger flavors of the month.