Fintech partnerships play a pivotal part in the strategies of a growing number of banks.
Whether that strategy happens to be offering banking as a service or launching a separate digital banking brand, the intent for many community banks is to attract customers outside of the branch footprint — and fintechs are key.
Legend Bank in Bowie, Texas, expects to line up multiple fintech partners for its new BaaS offering by the end of 2024, says Jared Robinson, the fintech program manager there.
He likens Baas to a “thrilling roller-coaster ride” for community banks. “It promises new deposits, fresh customers, impressive shareholder returns, and the chance to keep up with the fast-paced digital world,” Robinson says. “But let’s be honest, it’s also a daunting challenge.”
FirstBank in Nashville is looking to work with fintechs in two ways. It not only launched a BaaS offering, but also started a venture capital fund.
Wade Peery, FirstBank’s chief innovations officer, says it is “shocking” the volume of deposits and loans that nonbanks can gather by selling banking services directly to their customers.
And it’s not lost on him that those would have been customers of a traditional bank. “My guess is that most banks don’t realize the silent competitor that is eating away at the fringes of their deposit base,” Peery says.
Owners Bank, a division of Liberty Bank in Middletown, Conn., is also pursuing fintech partnerships, specifically those that can help it serve small businesses better.
The digital bank launched in April 2023, and beyond offering checking and savings accounts, a credit card with a rewards program, and fast access to loans, it has a suite of apps meant to make managing a business easier. This is powered by “an ecosystem of strategic fintech partners,” which it aims to expand, says David Mitchell, the founder and chief executive of Owners.
Here’s an overview of what the banks had to do to deploy these growth strategies and their goals going forward, along with some advice.
“Fintech partnerships should be part of every leadership team and board’s thinking, if not part of their strategic approach to acquiring customers,” says Peery.
Customer and Deposit Acquisition Via Fintech Partnerships
Wade Peery
Chief Innovations Officer
FirstBank
Nashville, Tenn.
Asset Size: $12.9 billion
What’s the biggest tech initiative FirstBank has underway?
It goes into one big bucket: fintech partnerships. In that bucket you will find the implementation of banking-as-a-service infrastructure coupled with a venture capital fund.
We believe that collaboration with the fintech community can lead to additional customer acquisition channels as well as solve problems within the bank. The intent of the fund is to provide early-stage companies with capital to develop ideas and solve problems that are strategic to FirstBank and, in some cases, may address ideas that originate from within the bank.
What was the timeline for this project?
The BaaS infrastructure and risk framework has taken the better part of 2023. We believe that taking a legal- and compliance-first approach to fintech relationships will pay long-term dividends for all parties. The program is live and gaining traction quickly as we build our pipeline and onboard new relationships.
What goals are you hoping to achieve?
The ability of nonbank entities to gather deposits and originate credit is quite shocking when you begin to see the actual numbers generated by selling banking services direct to what would have been a traditional bank’s customer.
My guess is that most banks don’t realize the silent competitor that is eating away at the fringes of their deposit base by being laser-focused on well-defined segments with targeted, robust product offerings. I believe that fintech partnerships should be a part of every leadership team and board’s thinking, if not part of their strategic approach to acquiring customers.
We are focused on partnerships that ultimately gather deposits. These come in many forms, and we really like those that solve real problems such as working capital and cash-flow management for small businesses.
“I believe that fintech partnerships should be a part of every leadership team and board’s thinking, if not part of their strategic approach to acquiring customers.”
What was your biggest hurdle with this project and how did you overcome it?
Not necessarily a hurdle, but the bar has been raised in terms of the regulatory environment. A high degree of rigor is expected from the third-party risk management function in terms of vetting the fintechs as well as a clearly defined and documented operational administrative program.
We invested in technology and talent to ensure our risk and compliance framework is best in class and now use that as part of our business development strategy. I think fintechs are becoming very sensitive to the fact that a bank partner’s regulatory issue could have catastrophic consequences to them.
Can you share a little more about the effort to make this happen? Were other departments involved along the way?
It starts with buy-in at the executive and board levels. Educating those groups on the competitive landscape and developing a path to not only compete but collaborate with fintechs sets the stage.
From there it becomes a technology integration that hard-wires a number of risk management tools into the enterprise risk management system of the bank. Operational areas of the bank are also heavily involved as they integrate transaction processing functions such as ACH and wire.
Finally, the icing on the cake is a central repository housing a robust set of policies, procedures, controls, testing and so forth.
See all of our latest coverage of banking as a service.
The ‘Thrilling Roller-Coaster Ride’ of Banking as a Service
Jared Robinson
SVP, fintech program manager
Legend Bank
Bowie, Texas
Asset Size: $1.1 billion
What’s the biggest tech initiative Legend Bank has underway?
We have several tech initiatives underway this year, but perhaps the most innovative and important is creating a new line of business for the bank through building a banking-as-a-service, or BaaS, offering.
What was the timeline for this project?
Our journey began with just a single sheet of paper. Back in late 2022, our executive team envisioned the creation of a BaaS offering.
From these modest beginnings, things took off quickly. In January of this year, Legend Bank brought me aboard as senior vice president of our fintech program and I delved into all things BaaS, attending conferences, learning from pioneers in the field, and absorbing knowledge like a sponge.
I shared these insights with our newly formed BaaS Steering Committee, and together, we’ve laid the groundwork for our BaaS program. We’ve been steadily progressing throughout the year and are excited to engage fintechs by year-end.
What goals are you hoping to achieve?
BaaS is like a thrilling roller-coaster ride for community banks. It’s tempting because it promises new deposits, fresh customers, impressive shareholder returns, and the chance to keep up with the fast-paced digital world. But let’s be honest, it’s also a daunting challenge, especially for community banks that haven’t been the quickest to embrace tech.
If you ask your typical community banker about APIs, you might as well be speaking another language. However, we’re up for the challenge because we believe the long-term benefits outweigh the short-term hurdles.
For our first fintech partnership, we’re excited to team up with a consumer fintech in the deposit account and debit card space. By the end of 2024, our goal is to be the go-to partner for multiple fintechs.
“We believe in a ‘cautiously audacious’ mindset, and this top-down encouragement to explore was instrumental in our journey.”
What was your biggest hurdle with this project and how did you overcome it?
Our most significant hurdle was taking a leap into the unknown, like trying out a new exercise at the gym. When we started, we didn’t have all the answers and weren’t quite sure where to begin, so we just went for it. We owe a big shout-out to Legend Bank’s executive team for their adventurous spirit.
They jumped into the new world of BaaS and fintech, and they were totally supportive of the bank pivoting when needed and always learning as we tried to build this new strength. In the words of our CEO, Jay Bearden, we believe in a “cautiously audacious” mindset, and this top-down encouragement to explore was instrumental in our journey.
What portion of its annual digital budget did Legend Bank put toward this project?
As this is the top project of our bank, the majority of our digital/technological growth initiatives budget is going towards this effort. We have other innovative initiatives in these areas, like robotic process automation, that we’re working on, but BaaS is at the forefront.
Can you share a little more about the effort to make this happen? Were other departments involved along the way?
While I was brought in to be a dedicated internal champion to spearhead our BaaS program, this initiative was far from a one-man show. It was a bankwide effort right from the start. Every department — including compliance, operations, finance, risk and more — have played a crucial role at every step of the journey.
BaaS is still relatively new in the financial world and there aren’t quite clear guidelines yet, so this lack of clarity can make risk-focused departments hesitant to support new initiatives. We’re fortunate at Legend Bank to have a strong risk and compliance team willing to venture into uncharted territory, but we’re always ensuring we’re holding to the intent of regulations.
Additionally, our finance team deserves a special shout-out for securing the resources and keeping us on track. Without their support, we wouldn’t have even started this amazing journey. Our BaaS program is a testament to teamwork and a shared commitment to innovation.
Read more:
- Avoiding ‘Me-Too’ Fintechs with Unusual Banking-as-a-Service Strategy
- How Banks and Fintechs Can Get the Best Results from Their Partnerships
A Digital Growth Strategy That’s All About Small Businesses
David Mitchell
Founder and CEO
Owners Bank, a division of Liberty Bank
Middletown, Conn.
Asset Size: $7 billion
What’s the biggest tech initiative your bank has underway?
Our biggest digital initiative in 2023 was the launch of Owners Bank, a division of Liberty Bank. This digital bank was designed specifically to help the average small business owner with a glaring issue, which is that big banks are built for big businesses.
By having a deep understanding that small businesses are both the backbone of our economy and highly susceptible to early failure, the Owners Bank team created a high-tech, high-touch mobile solution that addresses the critical needs of owners.
What was the timeline for this project?
The original idea for Owners Bank was conceptualized in 2020. In the years following, we worked hard to build out the team that would lead the bank, as well as our bench of strategic fintech partnerships to drive the innovation behind our offerings. Then, Owners Bank launched in April 2023 in Rhode Island, and we’ve continued to expand throughout the country in the subsequent months.
The team has prioritized offerings in the early months of the bank’s inception that speak directly to financial pain points of small business owners, such as accounts with no monthly maintenance fees. There are budgeting tools, digital invoicing capabilities, and fast (but safe) loans to make cash accessible.
A suite of best-in-class mobile apps and services, paired with customer service, are designed to make life easier and success more attainable for owners who play many (and sometimes all) roles within their business.
What goals are you hoping to achieve?
The banking solution provided by Owners Bank has been long overdue, as 5.4 million new business applications were filed in 2021, which was the highest year on record and a 53% increase from 2019. This initiative is important and was created to specifically meet the evolving needs of business owners.
The desire to start a small business in the U.S. has never been higher and small businesses are struggling with capital and the necessary tools to run their business. In the year ahead, we have aspirations of continuing to expand our offering and footprint, as well as our team and bench of partners — all with the end goal of helping small business owners better manage their finances and get fast access to cash flow.
“Owners Bank partners closely with an ecosystem of strategic fintech partners, which fuel our “No BS” banking for small businesses. Each partner specializes in individual areas of fintech — from customer service to bill payments and invoicing.”
What was your biggest hurdle with this project and how did you overcome it?
We developed Owners Bank to help with the everyday hurdles that small businesses face. Their hurdles are our hurdles.
Small businesses are often at a disadvantage when it comes to getting the resources necessary to succeed. However, Owners Bank customers have access to digital tools and offerings — including loans, checking and savings accounts, a credit card, and a suite of apps that make managing a business easier for busy owners.
Can you share a little more about the effort to make this happen? Were other departments involved along the way?
Many teams within the Owners Bank and Liberty Bank organization — from compliance to marketing to product, and everywhere in between — had a hand in the successful launch of the digital platform.
In addition, Owners Bank partners closely with an ecosystem of strategic fintech partners, which fuel our “No BS” banking for small businesses. Each partner specializes in individual areas of fintech — from customer service to bill payments and invoicing — and all fit together cohesively to bring top-of-the-line service to each aspect of the banking experience for small businesses.
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