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Which Fintech Firms Should Worry Community Banks and Credit Unions the Most?

Understanding competitive threats has always been the foundation of a strong strategic planning process. With so many new firms competing for share of wallet, which fintech firms should be watched?

Subscribe TodayOver the past several months, questions around local, national and international competition have been more prevalent than ever. With 12,000 fintech start-up companies spanning 18 different areas of banking, it makes total sense that executives want to narrow their focus, and take appropriate defensive planning action.

To get to the answer, some organizations look internally at their own organization strengths and weaknesses. This is an in-depth process that should be done as part of any strategic planning SWOT analysis.

Here are some questions that would be included in that discussion:

  • What is the institution’s primary area of focus (mortgage lending, commercial lending, retail banking, small business banking, etc.)?
  • Who is the target audience within the primary area of focus? How big is that audience? How much research is available to understand that audience?
  • What are the limits of the existing acquisition capability (geographical, self-imposed, employer group, other charter limitations, etc.)?
  • What tactics have been used to go after the desired target audience in the past, and how successful have these efforts been?
  • Which fintech firms are currently competing for business in the primary areas of focus?
  • What might the current target audience find attractive about the start-up fintech firms?
  • How well positioned is the institution to defend against the competing firm’s strengths?

In other words, the questions a bank or credit union needs to ask are not significantly different than the ones that were asked before new non-banking organizations were introduced. It’s just that the answers may be more focused on digital delivery, advanced analytics, lower costs and ease of use – advantages that legacy organizations don’t usually have.

But, focusing on any one competitor is a futile exercise.

Remember that each fintech startup today has 20-30 similar firms that provide a very similar solution. So, instead of focusing on a singular company, an organization may want to rephrase the question as part of the strategic planning process.

“What fintech company should we worry about?” is a defensive question. It automatically puts an organization and a strategic planning team in a loser frame of mind – concerned about external influences that are beyond an organization’s control. Questions like this can cause planning teams to feel completely overwhelmed, pressured to make the “right” choice, and unsure of the next step.

These defensive-oriented questions cause great brains to simply shut down.

While it is imperative to have a finger on the competitive pulse, community financial institutions as a whole should adjust their thinking from a protective posture to an aggressive positioning.

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Get a New Perspective by Rephrasing the Question

The questions should be rephrased to, “What can we do today to make sure we continue to grow over the next 3, 5 or 10 years?” First of all, by focusing on the things that an organization has control over, makes a team feel better. It allows a repositioning of the strategic planning team to effectively brainstorm solutions to tackle problems within the institution’s control.

Here are some broad questions that should be considered:

  • What can an organization do to scale itself? From compliance workflow automation, to data-driven marketing delivery, to brand recognition, spend a lot of time focusing on ways to cut FTE expense and invest in efficiency solutions that outside technologies and vendors can offer.
  • Which target audience(s) should be focused on? While this doesn’t mean turning a back on existing segments, it does mean that an organizations should bite the bullet and make a strategic decision to no longer invest in unimportant (unprofitable or unscaleable) segments.
  • Which products or services should no longer be offered? What can an organization excel at? Notice I didn’t say “should” or “is”. This is a forward thinking statement, and requires an organization to spend some time thinking about where they will go, which services will no longer be offered, and which services will really drive future growth.
  • How do I condition an entire team (and organization) for a future of change? The earlier an organization can get excited about the future (and not fearful of it), the better off they will be.
  • Are the right leaders and processes in place? An institution will necessarily undergo extraordinary change management challenges over the next several years. To succeed, organizations in transition will need a strong team to help navigate those waters.
  • What new skills should be brought in-house? Which can be managed by best-in-class providers? Odds are, an organization won’t directly employ data scientists, but it better rely on vendors who know what they are and why they can help you.
  • Does the current board have the necessary skills, thinking, connections, and guts to support the organization over a very challenging period to come?

As most things in life, flipping the problem just a bit can dramatically improve how we look at solving it. The question is whether an organization is up for the challenges (and opportunities) that digital delivery, new technology, new expectations and new competitors provide.


John Waupsh has pioneered integrated fintech and financial marketing solutions for over a decade, including Kasasa®, a national brand of financial products offered exclusively at hundreds of community financial institutions around the United States. His work has helped Kasasa grab three Finovate “Best of Show” titles, as well as numerous other awards. John is Austin Chapter Lead of Next Money, and a mentor with Bank Innovation’s global fintech accelerator, INV. He is a speaker at top fintech and banking conferences, and his book, Bankruption: How Community Banking Can Survive Fintech, is available on Amazon now You can also follow John on Twitter by clicking here.

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The Financial Brand Forum 2017 | May 17-19 | Las Vegas

Comments

  1. Great perspective. Any time you approach a challenge with, “what do I need to improve to be victorious?” instead of, “we’re so unprepared, we need to find everything not to do”, you’re ahead of the game.

    As you mention, it’s not the companies themselves which are the threat; it’s the very idea that you may be seen as irrelevant in the eyes of future members. So, how can you maintain relevancy in the years ahead? Part of that will entail understanding what trends start-ups are leaning on for their new approaches. Being as nimble as them will allow you to adapt with the times.

    In the words of Steve Jobs, “Stay hungry. Stay foolish.”

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