Are Fintechs Key to The Survival of Banks and Credit Unions?

A successful community bank built on in-person, customer-first service decides that acquiring an online lending marketplace is the right move. ConnectOne Bank's CEO asserts that low-friction and high-touch are a powerful combination for financial institutions.

A growing number of banks and credit unions recognize that survival hinges on more than avoiding bad loans. Their future now also depends on adjusting their strategy, skill sets, and technical capabilities to match very different customer expectations in a much more competitive landscape.

These forward-looking institutions recognize that competition from some of the largest banks has reached a higher level. The big banks have become more nimble, due in part to huge technology budgets that allow for personalization, next-generation mobile banking, advanced chatbots and much more.

“The biggest banks are not the bumbling giants they were ten years ago,” says Frank Sorrentino, CEO of New Jersey-based ConnectOne Bank. “They’re formidable competitors.” ConnectOne competes directly with JPMorgan Chase, Citi and others in the New York metro area.

Frank Sorrentino banks not bumbling giants quote

Further, community financial institutions recognize that the same digital technology that has revolutionized consumer banking is also impacting the market for small and mid-size businesses, where smaller financial institutions until now have enjoyed an edge. This development gets Sorrentino’s full attention because far more of ConnectOne’s balance sheet is devoted to business loans than consumer loans.

Digital technology has already led to a major loss of market share for community institutions in mortgages and other consumer lending products. Sorrentino sees more and more small business loans going to digital lenders enabled by fintech technology. Chase’s partnership with online business lender OnDeck is a good example.

“It’s clear to me that the world is changing and that our clients want to access products and services in different ways,” Sorrentino tells The Financial Brand.

Time to Get into the Online Lending Game

Far from viewing the digitization of all banking products and services and the impact of the fintech movement as a negative, Sorrentino consider it healthy for the industry.

“Fintechs are stirring the pot and forcing everyone to think differently — and they’re creating opportunities.”
— Frank Sorrentino, ConnectOne Bank

“Fintechs are stirring the pot and forcing everyone to think differently — and they’re creating opportunities.” Further, he says, the transformation is great for the consumer and for business clients because of a greater choice of products with less friction in using them.

Putting this thinking into action, Sorrentino initiated ConnectOne’s acquisition of Boefly, an online business lending marketplace. “I want to be in the game,” the bank CEO states, “and this made a lot of sense for us.” Besides helping the institution meet customers’ changing expectations, the deal also positions ConnectOne in two new credit markets: SBA lending and franchise lending. “This opens up new ways of thinking about where our next clients will come from,” says Sorrentino.

More than that, the banker says, Boefly brings into the organization a group of people that created a digital enterprise outside of the banking space. They think about client acquisition and client needs in new ways, he says. “Some of the people that financial institutions need to hire to be successful now are just not the typical people you’ll find in a community bank,” Sorrentino states.

ConnectOne paid “single-digit millions” for the privately held fintech, which will operate as a separate division, according to ConnectOne CFO William Burns, speaking during an earnings call. He also said that Boefly’s revenue, currently from referral fees, is in the range of $1 to $2 million annually. While ConnectOne now owns Boefly, it will just be one of many lenders on the platform, Burns noted. Boefly could, however, present opportunities for out-of-market loans that fit the bank’s model.

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Technology Strengthens Customer-First Focus

The Boefly acquisition is a sharp departure from ConnectOne Bank’s business model in some ways. Sorrentino, a successful builder in the first part of his career, built the bank from scratch beginning in 2005. The institution now has just over $6 billion in assets.

The success of ConnectOne was due largely to a client-first mentality that Sorrentino hammered into his institution’s culture. Having been a banking client for many years he knows how important customer experience is.

“I’m constantly pushing and prodding my staff, asking, ‘What would the client think?’,” he says. “We provide the same products and services most other banks provide. The way in which we provide them and the experience are what set us apart.”

From that core premise flows one of Sorrentino’s mantras: Always have a sense of urgency when dealing with any customer.

All this hands-on, personal, client-first approach may seem like the complete opposite of what an online marketplace lender does. But Sorrentino, who was an active bank investor long before he became a banker, is keenly aware that nothing stays the same in today’s banking world. He can see that the industry is changing dramatically. And so while the bank’s core values remain intact, the Boefly acquisition is one way Sorrentino is endeavoring to stay ahead of all the change.

“People want experiences that have less friction. That’s true in banking just as it is with watching a movie or getting food delivered.”
— Frank Sorrentino, ConnectOne Bank

His viewpoint wasn’t an overnight conversion. Sorrentino recognized early that the right technology was key to exceeding client expectations. To a certain extent customers don’t care about whether a bank uses the latest technology, he observes, they just care about the end result. However, “people want experiences that have less friction,” Sorrentino points out. “That’s true in banking just as it is with watching a movie, getting food delivered, or ordering dress shirts.” As an example, he compares the process of making a deposit ten years ago, which required traveling to a branch, filling out a form and waiting in line — “a lot of friction” —with today, when consumers and businesses can deposit checks with a mobile app and have the money in their account in seconds.


Sorrentino applies what he calls the “3X rule” to technology investments. He asks his team to think in terms of what they would need to be doing if the bank were triple its current size.

“You hear companies talk about legacy systems,” he says. “You’ll never hear that at ConnectOne Bank. If we’re going to survive into the future we should be thinking about what we need to prepare for the future.” The adoption of the nCino loan production and deposit origination platform fits into that model. The bank really wasn’t big enough to take full advantage of the cloud-based system, but management knew at some point it would be.

“Our purchase of Boefly and the capabilities of the nCino platform enable us to compete with the largest institutions,” Sorrentino maintains. Not only the largest, he adds, but the next tier down, as they scale up their technology as well.

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In-Person Consultation Won’t Disappear

The kind of personal, in-person banking that has driven much of ConnectOne Bank’s success isn’t going away.

“Advice is still a big part of what we provide and that’s not going to be digitized,” Sorrentino states. When people want to talk about how to handle the financing for a new business venture, that will continue to require a physical location, in the banker’s view. However, the bank’s 21 branch offices are evolving, he notes. They’re much more consultation-oriented now as opposed to transaction centers.

One thing is clear to this builder turned banker: Banking used to be a very homogenous business. No longer. He’s seeing more and more institutions choosing different paths to differentiate, and very few general-purpose banks being formed.

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