Is Your Institution Prepared for the Next Generation of Consumers?

12/30/2019 Larry Brown

When it comes to technology, one thing is certain: Community Financial Institutions (FI), who fail to deliver the digital products and services their customers demand, will be left behind. Today’s customers, particularly the younger generations, want access to banking services on their computers, tablets, and phones, and are all too ready to drop their existing FI for one who offers the digital experience they desire. Community FI’s have a technological advantage over larger FI’s in that it is more cost effective and efficient to implement new technology at a smaller institution, allowing them to stay on the forefront of technological changes. Technologically advanced FI’s also have access to significant amounts of data that, when leveraged appropriately, can help institutions better understand their customers and their financial needs.

Where does fintech come in?

What’s less certain, is how to get there: Build, buy or partner? Few community FI’s have the resources to build their own digital services. For many FI’s, buying the functionality they seek from a vendor is an acceptable option. But an increasing number of FI’s are partnering with fintech companies to develop more innovative, customized solutions. Some FIs are even acquiring fintech companies or investing in fintech “accelerators” — organizations that provide funding and other support services for fintech start-ups.

One well-known success story involves Boston’s $850 million Radius Bank. The bank partnered with fintech and investment firms to create Aspiration Summit Checking, a high-interest online-only checking account named best checking account by Money magazine shortly after it was launched in 2015.

Is collaboration the answer?

Not long ago, FI’s viewed fintech companies as a threat, but in recent years that attitude has changed. In a 2016 study, Growing Together: Collaboration Between Regional and Community Banks and Fintech, law firm Manatt, Phelps & Phillips, LLP, and financial intelligence firm Mergermarket, reported that the vast majority of responding community FI’s viewed collaboration with fintech companies as “essential” (43%) or “very important” (43%).

FI’s cite several benefits to collaboration, including improving their ability to offer online services — in particular, more convenient and reliable mobile platforms — decreasing technology costs and allowing them to offer lower lending rates. According to the study, fintech companies see working with community FIs as an opportunity “to become established in the industry, legitimize their operations in the eyes of skeptical consumers or expand their market share.” Some fintech companies, the report goes on, “are also in need of capital and see the bank’s liquidity as a potential benefit.”

Although the majority of FI’s (54%) view fintech companies as potential partners, some FI’s (5%) continue to see them as a threat, while a significant number (27%) see them as both potential partners and a threat. Nevertheless, the vast majority of FI’s (88%) believe that, in 10 years, the banking industry will be characterized by “traditional FI’s partnering with fintech companies in a largely collaborative environment.”

But fewer fintech companies (48%) are as optimistic about future collaboration. A significant number of respondents (37%) believe that, in 10 years, the banking industry will be dominated by “a few large FI’s, with fintech serving all other niches.”

What are the challenges?

Partnering with a fintech company is a complex venture that involves a variety of risks, so thorough due diligence is critical. Bank respondents in the aforementioned study said the biggest due diligence challenges in vetting potential fintech partners are:

  • Legal/regulatory due diligence (46%),
  • Cybersecurity due diligence (32%), and
  • Financial analyses (22%).

Be sure to work with experienced legal and financial advisors as you explore your fintech options.


Technology will continue to transform traditional Community FI operations, and it’s important to consider fintech as an option to remain competitive and serve technologically advanced customers. Community FI’s should consider fintech in its strategic planning process in order to fulfill customers’ needs, create a plan to bring employees onboard, create timeline implementation and determine other benefits like access to informative customer data.

For more information regarding fintech, contact our Financial Institutions Service Group today.

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