Editor's Note: Fintech partnerships enable smaller financial institutions to compete with bigger banks by providing the digital technology consumers expect. Learn more.
For some time now there has been a general assumption made by many in the financial services industry that smaller banks and credit unions are not likely to develop a competitive advantage based solely on their products, services or marketing. It was assumed that if these financial institutions (FIs) were going to prosper, they would only be able to do so by leveraging the “personal touch” they can provide over what is typically found at the larger institutions. This strategy did not require these FIs to have the best of breed technology. Good enough was good enough.
Then along came the smartphone, tablets, smart watches, Internet-enabled cars and the IoTs reducing opportunities for these institutions to deliver that personal touch face-t0-face.With Bank of America, Wells Fargo, JP Morgan Chase and other major financial institutions capable of investing hundreds of millions of dollars each year into digital banking initiatives, smaller FIs – including many regional players – are now vulnerable to losing customers and members to institutions that offer best-in-class digital services.
However, many of these organizations still buy “good enough” online and mobile banking applications as part of a bundle from a single provider (usually a company built around core processing solutions). The provider, of course, has very impressive plans for upgrading their dated products but even if that were to happen, issues around configurability and extensibility will limit the value of these “improvements” to the FIs receiving them. There are options to remaining exposed and outgunned in the digital age.
There is a strategy being used by some regional FIs that could provide such an option. The approach that is providing these regionals with the ability to compete with their larger opponents successfully is replicable for an institution of most any asset size. According to a recent Bank Innovation article, banks such as First Tennessee that have completed the deployment of their digital banking platform strategy have lowered cost, reduced complexity and increased engagement levels with their customers by driving new innovations to market faster and more frequently.
Technology is leveling the playing field as new development languages, architectures and tools are being used by new fintech players in the marketplace to make it possible for a bank or credit union to fast follow new innovations such as voice activated banking through assistants like Alexa. The technology involved is not proprietary (in and of itself) and can be used to create scalable, extensible, configurable platforms that deliver a reasonable return-on-invest while increasing opportunities for savings.
Technology, however, is not the whole story. Any bank or credit union wanting to compete with larger institutions will need to consider how their institutional mindset may impact their future viability. It still surprises me when I hear an FI executive say something like “Our existing online and mobile platforms are good enough and our customers/members are fine with them.” My grandmother called that “whistling past the graveyard.”
The mindset represented in such a statement ignores the inevitable and mountains of research that indicates all demographics are becoming digitally engaged. A case in point is a study by Javelin Strategy and Research found that seniors are among the largest constituencies indicating a desire to use Alexa, Siri and Google Home to bank. Why? Because these devices radically reduce the confusion and inefficiencies that are still part of most user interfaces.
It certainly could be an overstatement to say technology could radically transform the competitive landscape for banks and credit unions of all sizes over the coming few years. However, I would not bet against it. After all, no one – NO ONE – realized the full impact the smartphone would make on our lives and nearly every industry on the planet. The creativity and intellect that drove that transformation is still at work except in even greater numbers.
Those whistling past the graveyard – be they FI executives, leaders of the largest financial services software providers or stock market wizards – may find the trip much shorter than they thought it would be.