The New Community Bank Model: Digital-First With a National Footprint

A team of fintech entrepreneurs and investors are toppling traditional banking paradigms and creating a playbook for financial institutions of the future. They're also demonstrating that a local community bank and a digital-first national bank can happily coexist.
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When a group of fintech investors, individual investors and private equity came together to recapitalize Volunteer Bancorp and its subsidiary, Civis Bank — a small community bank in Rogersville, Tenn. — the company enthusiastically said “yes.” It recognized that the offer represented an opportunity for growth and innovation beyond what a typical community bank could ever experience.

The bank, renamed Thread Bank, continues to serve its existing customer base in eastern Tennessee with traditional banking services, but will also become part of a digital-first bank that Chris Black, Thread’s new CEO and President, says will serve as a model for other small financial institutions in how to embrace technology in a profitable and sustainable way.

Many small banks haven’t invested sufficiently in technology in the past decade or so and have begun to fall behind financial services competitors, many of whom are non-regulated companies. “We saw an opportunity to create a platform that other banks can use as an example of how to embrace and embed technology into banking,” says Black.

Weaving Technology and Banking in a New Way

The fintech team wanted to leverage an existing community bank to prove that tradition and technology could happily co-exist. After a nationwide search for a bank with a small branch footprint that was free from heavy legacy technology baggage, they approached Volunteer Bancorp.

Volunteer was all-in and its employees quickly became valued team members. Although eastern Tennessee isn’t known as a hotspot for technology careers, once word about Thread got out, the bank attracted talented employees who worked in more sophisticated banks and fintechs or who grew up in the Rogersville area and had left for greener pastures and wanted to come home.

“Time is running out for community banks to figure out how to deploy technology and challenge long-existing paradigms.”

— Chris Black, Thread

“We are building Thread on the foundation of a well-established community bank,” says Black.

Banks are the lifeblood of many communities and Black wants to see them thrive. “Community banks are on the extinction list,” he warns. “Deposits, loans, capital liquidity and payments will remain the foundation of banking, but time is running out for community banks to figure out how to deploy technology and challenge long-existing paradigms.”

Black promises, “Thread is going to challenge nearly every paradigm out there.”

The bank’s new name is a deliberate reference to weaving thread into a garment to make it stronger or to enhance its attractiveness. “It’s a nod to threading banking and technology into other distribution channels to form a very strong foundation,” says Black.

Talking Blockchain in Banking

Thread’s chairman of the board is Joe Maxwell, a seasoned fintech entrepreneur who also runs FINTOP Capital, a fintech venture capital firm that currently manages over $600 million across five funds. In addition to investing in various financial technologies and bank-focused technologies, FINTOP will help banks explore, research and learn more about blockchain through the JAM FINTOP partnership.

Think Blockchain, Not Crypto:

Blockchain-based, tokenized deposits will likely serve as the foundation for digitization of FDIC-insured deposits.

The potential for blockchain in financial services is significant, says Black. “Blockchain has the potential to revolutionize many industries, banking included; its use cases align with our worldview that everything that can be digitized, will be digitized. Blockchain enables straight-through processing and delivers efficiencies and transparency to financial transactions.”

For some bankers, blockchain has a negative connotation since it’s closely associated with highly speculative cryptocurrency. But blockchain will likely serve as the foundation for the digitization of FDIC-insured deposits in the banking system. For instance, the USDF (U.S. Dollar Forward) Consortium is currently working with regulators to deploy a bank-minted tokenized deposit based on blockchain with its member banks.

Unlike Bitcoin, Ethereum, Dogecoin or other cryptocurrencies subject to wild market fluctuations, USDF is backed by one-to-one FDIC-insured deposits. It’s also very different from stablecoins backed by an algorithm like TerraUSD and Luna, which plummeted to nearly zero value.

While Black can’t envision a world where cryptocurrency will sit on a bank’s balance sheet, he does see a place for banks to serve as custodians or to partner with custodians. And although the current cryptocurrency market is fragmented, figuring out how to use blockchain technology to digitize assets is a smart move if banks want to stay relevant.

“No one wants to jeopardize the stability of the banking system but there is an appropriate place and way for banks to serve customers who want to trade or have assets in cryptocurrency,” says Black.

Why Thread Is Bullish on BaaS

Banking has always been about “going to the bank” whether that means stepping into a branch, using the ATM, going to the bank’s website or logging into a mobile app. It’s just one of those traditional paradigms that Thread is unseating. Instead, Black asks, “Why can’t our bank go to the customer?” He is very bullish on banking-as-a-service (BaaS) in which banking is embedded into customers’ everyday experience.

“We are making our offerings all about the customer and innovating banking that works for their lifestyles. Banking absolutely has to do this to build strong customer engagement,” says Black.

While the BaaS market is already well-established, there are still plenty of opportunities for banks to partner with interesting fintechs that support leveraged distribution platforms.

When building its own partnerships, Thread will be selective and only work with partners that have a leveraged distribution platform coupled with a customer base that will benefit from having banking products and services deployed into that platform. It will be a symbiotic relationship.

“We want our partners to thrive and to help them create higher levels of customer engagement,” explains Black. “We can then expand and thread our banking services into multiple products such as those that help customers manage their financial health.”

In fact, stresses Black, Thread’s business model is based on partnership rather than technology. “What really matters is transparency, integrity, partnership and risk management,” he says.

Banking isn’t rocket science, but transformation is difficult. It requires communication, leadership, transparency and being brutally honest about what’s working and what’s not working and what needs to change, Black maintains.

He promises, “We’re going to lead the way and expect that other banks will follow.”

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