The Financial Brand Insights - Spring 2023

It’s clear that account holders benefit when their bank or credit union partners with a fintech. But those partnerships can also benefit financial institutions .

account holders. Spending time understanding what your consumer and business account holders (including large commercial accounts) need and want is mission-critical. Only then can you focus on finding the fintech partners that will help you deliver those solutions tailored to your account holders. Again, think from the outside in, from what your customer needs, not which fintech is the shiniest or getting the most press. The Bottom Line If they want to remain relevant and competitive, financial institutions must do three things: Leverage data, deliver personalized experiences and forge fintech partnerships. Those that can go beyond traditional banking and provide a broader set of financial solutions that align with their account holder needs will increase their market share and deepen relationships with their current customers. And then there’s the culture factor. Does the financial institution have a culture that’s open to new ideas and is willing to embrace thinking about digital delivery, digital service and the digital experience in new and different ways? Banks and credit unions must start with their people and change the culture. They need to embrace a culture that's not only open to new ideas but is willing to accept failure from time to time with some of the ideas that they put forth. Those that confine their offering to traditional banking products are at risk of losing relevance and market share. They won’t be Netflix. They’ll be Blockbuster. ▪

Figure 7

Figure 8

How confident are you that your institution is adequately offering fintech solutions to customers through digital banking?

How important to your institution is the ability to offer fintech solutions to customers through digital banking?

Not at all confident

Not at all important

Slightly confident

Slightly important

Moderately confident

Moderately important

Fintech and bank partnerships are not neces- sarily new, but technology advancements have significantly changed the partnership model. Now, digital banking platforms that are extensible and open enable fintechs to integrate on their own with a common integration method, versus creating one-off integrations for each individual financial institution. This significantly increases the speed and efficiency of offering new fintech solutions to target markets and eliminates the cost burden on financial institutions associated with integrating with fintech solutions. As an example, a mid-sized bank in the Midwest launched a small business accounting offering and at 8:30 a.m. on the first day offering was available, a small business company purchased the accounting solution. At 8:40 a.m., that small business sent the first invoice from the accounting package, and at 8:50 a.m., that business received the payment for that invoice. In less than 30 minutes, a business customer at a midsized bank signed up for the new service, sent an invoice and collected on that invoice. In another example, Texas Security Bank (with $1 billion in assets) recently rolled out six fintech solutions in 12 months through its digital banking platform. The partnerships opened new avenues for the bank to generate non-interest income opportunities and opportunities to win new deposits. Both cases illustrate how fintech partnerships can enable financial institutions to integrate innovations at a speed which have historically been unattainable. Despite the numerous advantages to partnering with fintechs and almost unanimous consensus that it’s important to do so (95% of financial institutions surveyed agreed), only one in five of those financial institutions are very confident that they are adequately offering fintech solutions to their account holders (Figure 8).

Very confident

Very important

Extremely confident

Extremely important

0%

10%

20%

30%

40%

50%

0%

10%

20%

30%

40%

50%

© February 2023 SOURCE: The Financial Brand

© February 2023 SOURCE: The Financial Brand

What accounts for the discrepancy? First, those institutions that lack confidence are probably not working with a platform or architecture that enables fintechs to embed solutions easily within them. The second obstacle is that many financial institutions aren’t acknowledging that their account holders really desire these incremental solutions to be embedded inside of their banking experience. So at some level they haven't quite embraced the reality of what's happening in the market. Third, they may not be aware that they can change the business model by partnering and by embracing this ecosystem — which opens the door to expand beyond the traditional revenue sources to capture new revenue opportunities. Those are the challenges. Now let’s look at solutions. It begins with getting to know your

Offering embedded fintech solutions is a sign that the financial institution is innovative and demonstrates that they are paying attention to the needs and the desires of their account holders. Fintechs can also enable banks and credit unions to offer digital features and functions that they’re not able to offer on their own. It’s clear that account holders benefit when their bank or credit union partners with a fintech. But those partnerships can also benefit financial institutions. First, they can provide avenues to new non-interest income through innovative products. Second, they foster deeper and stickier relationships with their customer base. If a business account holder utilizes accounting solutions offered through a fintech partnership, for example, it’s more difficult for that account holder to move on. Fintechs are great at solving specific problems and offering very specific products and services, but their big detraction has been that they operate independently and aren’t connected to their customers’ traditional financial operations. By partnering with fintechs, financial institutions have the opportunity to create a holistic view of the financial aspects of their account holders’ lives or their business customers’ needs and deliver a cohesive, seamless digital experience. That, precisely, is the attraction, and it’s the reason consumers and businesses are looking to their financial institution to offer more fintech solutions.

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THE FINANCIAL BRAND INSIGHTS SPRING 2023

THE FINANCIAL BRAND INSIGHTS SPRING 2023

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