As community banks and credit unions embrace fintechs as partners, both sides are learning how to navigate these relationships.
The one-time rivals have come to appreciate that they have a lot to gain from teaming up, but relationships still take work. Banking and fintech executives who have collaborated with each other stress the need to communicate, set expectations and stay focused on what they are hoping to accomplish together.
Indeed, the best bank-fintech relationships may resemble those that executives at smaller institutions have with their own customers, says Wayne Miller, senior vice president of innovation programs for the Independent Community Bankers of America. “If there’s a problem, I want to be able to pick up the phone and call the CEO,” Miller says.
And just as they might with a new hire, executives should check in with other institutions using the technology they are contemplating, he adds. “This is an industry that, I think, relies heavily on referenceable business and accounts.”
The rewards that come from a successful working relationship can be huge. Community banks and credit unions are in pursuit of innovative products and services, and they get to use technology they couldn’t develop internally. Their customer bases offer fintechs more users faster and at less expense than marketing to the masses directly, a benefit that is especially attractive now that fresh capital is harder to come by and the pressure to achieve profitability is acute. The fintechs also gain valuable insight from the bankers on how to finetune their offerings.
Here’s some advice from Miller and fintech executives on getting the most out of a bank-fintech partnership.
1. Keep It Simple, and Expect There’ll Be Some Kinks to Work Out
At community banks and credit unions, staff members often wear many hats.
“They might have a title but they’re doing 30 different things,” says Chuck Long, head of revenue at Zogo, a fintech offering a financial literacy app tailored for Generation Z. The Austin, Texas-based company, founded by students at Duke University in 2019, now works with more than 270 financial institutions.
Zogo aims to make its products as easy to use as possible, Long says. It has made tweaks based on feedback from its partners — for example, its data tools incorporate geographic information on users, because bankers had asked for that. Long attributes their request to Community Reinvestment Act reporting requirements.
Simplify the Task at Hand:
Bank and credit union employees are often juggling more than one thing at a time. To the extent a fintech can tweak its software to help solve for an unexpected pain point at a financial institution, the better.
At the same time, bankers should not expect a fintech solution to be a simple matter of plug and play, says Tyler Brantley, vice president of revenue operations and business development for Core10, a Nashville, Tennessee-based fintech developing digital lending and account opening tools for retail and commercial customers.
The best partners provide input on whether the solution is working and any opportunities to improve it. Core10, for example, has benefited from bankers pointing out how to better align its commercial-account products with existing workflows, Brantley says.
“As we’ve discovered, it’s not one size fits all,” he says. “But there are commonalities where we were able to improve product features.”
2. Ask the Hard Questions (a Lot of Them)
While community banks and credit unions may be warming to fintechs, they should go into any collaboration with their eyes open.
The leading questions for bankers are about cost and ease of integration, Miller says. But they also should ask about security and compliance issues, as well as the future paths of the startups with which they’re partnering.
“Many of these companies are still venture-funded,” Miller says.
Bankers may be concerned about what happens if the funding dries up — or if their partner is acquired by a larger firm, he says. “We’re seeing a pretty decent amount of consolidation in the fintech space.”
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3. Understand the Problem You Need a Fintech to Solve
Banks and credit unions often turn to a fintech to solve a problem, whether it means streamlining a lending process or rolling out the ability to open accounts digitally.
However, the actual problem may lie elsewhere and that can lead to frustration when solutions don’t quite fit, says Brantley. “What they hadn’t done was really measure, ‘Where’s our issue in the bank? What are we trying to do? What’s the real gap we’re trying to close?'”
Partnerships succeed when bankers figure out the problem and then define the metrics they will use to measure success, Brantley says. “It provides much better outcomes for everyone.”
In addition to understanding their specific problems, bankers also make good partners when they focus on the bigger picture, Brantley says. “Those banks that we have had the best relationships with are ones that step back and say, ‘Hey, how does tech play a role in our strategic roadmap and plan as a bank? How does it fit into our personality?’
4. Avoid Top-Down Mandates and Pace the Tech Implementation
A financial institution’s leaders may be enamored of a particular fintech’s approach. But that does not guarantee warm and fuzzy feelings from the staff members whose routines will be altered by the adoption of new technology.
“Top-down mandates without stakeholder buy-in do not work, especially when you think about bank teams that have operated in the same way for 20, 30 years,” Brantley says.
Nor do they work when banks try to do too much at once. “You blow up the bank’s operational backbone and people’s heads at the same time,” Brantley says.
When a financial institution tries to implement a big change too swiftly, “you blow up the bank’s operational backbone and people’s heads at the same time.”
— Tyler Brantley, Core10
Perhaps counterintuitively, his experience suggests the best bank-fintech partnerships owe some of their success to a slower start. “They’ve taken a short amount of time upfront and gotten the buy-in and the engagement,” Brantley says.
He also suggests banks and credit unions aim for a smoother progression, breaking up changes into smaller pieces to help staff members adapt.
Another key to acceptance is for financial institutions to empower staff members to own the technology project, he adds. “When they do that, we found you get better stakeholder buy-in down at the operational level of the bank and you’re going to get better outcomes at the end of an implementation.”
5. Understand the Value That Will Be Gained
Fintech solutions cost money, so banks and credit unions should be sure of the value they are getting in return.
“Community bankers very much like to see these companies earn the fees that they charge,” Miller says.
As a result, fintechs should understand the value they are — and are not — delivering. This helps avoid unrealistic expectations, which can undermine a partnership. Zogo honed its pitch during its participation in the ICBA ThinkTECH accelerator, which matches banks and fintechs in a form of speed-dating.
Zogo helps banks and credit unions reach the next generation of customers, Long says. “What are the best ways to do that? Build trust with that younger generation early, by providing the financial tools that are going to help them on their financial wellness journey.”
“The value we’re trying to provide and the genuine impact we’re trying to provide get lost when [customer] acquisition becomes the number one focus.”
— Chuck Long, Zogo
Of course, banks and credit unions are interested in acquiring new customers and new members.
However, Zogo itself is not trying to be an acquisition tool. Instead, it focuses on engagement and improving the financial wellness of people who use its app, Long says.
“The value we’re trying to provide and the genuine impact we’re trying to provide get lost when acquisition becomes the number one focus,” he says.
Zogo won’t turn away potential partners that are keen to acquire customers, he says. “We’re not going to say no to anyone that genuinely cares about forming a meaningful partnership. We will just go in with the statements ahead of time saying, ‘Hey, this is not something that our product is focused on, but we’re happy to try to support you in your goals.'”
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