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Banks are taking sides: Fintech disruption or fintech partnership?

Joseph Lowe
Posted by Joseph Lowe
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Today, online-only banks and alternative lenders pose a major threat to community banks that are unwilling to adapt to changing customer expectations. Startups, such as Better Mortgage, can offer mortgage loan decisions in just three minutes using only a credit score and stated income. Meanwhile, large banks such as Goldman Sachs offer online convenience and high interest rates with their online-only deposit products sporting an annual percentage yield (APY) of 2.05 percent, when the average currently pays just .09 percent.

In Sageworks’ newest eBook, Agile Bankers: How Community Banks are Addressing Disruption, Risk and Growth, James Anthony, CEO of Martha’s Vineyard Bank, says that despite the technology-driven disruption, he views fintech partnerships as an opportunity to balance the playing field, streamline the lending process internally and improve the customer experience externally.

“We are not trying to automate in order to replace people with technology,” Anthony says in the Agile Bankers eBook. “It’s about empowering and arming the people we have with technology so that we can get the noise of the day to day out of the way and they can focus on the more impactful things that human minds are good at addressing – those things that you can’t automate.” 

Community bankers’ ability to build lasting relationships with clients has been a differentiator and the cornerstone of their brand, but often times that ability is lost in the noise of bankers’ less important day-to-day operations. For the community institutions searching for a competitive edge, choosing to partner with a fintech company that provides an end-to-end solution can yield numerous bank-facing and client-facing benefits because efficiency gains will provide time and mind-share to offer value-added services for customers.

Meet customer’s online deposit expectations

In the Agile Bankers eBook, Sound Financial Bancorp. CEO Laurie Stewart says mobile banking and online deposit offerings will play an important role in winning loan accounts for community banks. This should come as no surprise, as 40 percent of Americans access their bank accounts online and 26 percent access accounts from a mobile device according to an American Bankers Association Survey. The survey also points out that the two youngest age groups – 18 to 29 years old and 30 to 44 years old – are most likely to turn towards their mobile phone to access account information, with nearly half (46 percent) of all 18 to 29 year olds doing so. Today’s community institutions have a choice; they can choose to battle fintech rivals and gamble losing deposits or adopt third-party technology and choose a fintech partnership to win mobile and online customers.

Online banking has also ramped up the pressure for community banks to focus on deposit accounts in 2019 and, “We’re seeing regional banks start to pay up for deposits that have never done that before,” Stewart says in the Agile Bankers eBook. It’s table stakes for financial institutions of all sizes to look toward the convenience of technology for deposit customers, because they serve as a valuable method to fund loans for community banks.

For financial institutions, however, the lending process is where fintech partnerships can be leveraged with the most value within an institution. The number of staff, documents and times data entry is required during origination or loan renewal all mean the process is prone to inefficiency, delays and potential errors.

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Find the balance between touch and technology

A question all banks should ask is, “How can we streamline our lending processes?” Vetting technology products is a critical component of any vendor selection, but its importance is amplified because banks and credit unions each tend to have unique credit analysis, loan decisioning or loan administration processes. Furthermore, no bank is the same in terms of the challenges it faces. Bank ABC might suffer from a bottlenecked credit analysis pipeline due to simple data entry problems while analyzing tax returns, while Bank XYZ offers too slow of a turnaround time for loan decisioning.

The clear benefit of lending technology is loan decisions that once took weeks can be quickly made in days or even hours; credit analysts can focus on the business opportunities with the highest returns, while the low-return loans can be handled quickly, professionally and painlessly.

However, for community banks, the key benefit of these services is saved time to capitalize on their mainstay –  relationship banking and personalized, one-on-one service. First National Bank of Layton CEO John Jones says sometimes people just want to hear a human voice on the end of the phone line, and technology gives banking professionals the opportunity to offer that voice.

“I’m telling you that when there’s a problem, nothing makes somebody feel better than to know they’re talking to a real human being who cares, who’s going to try to fix the problem,” Jones says in the eBook. “A chatbot is not going to cut it.”

But there’s a balance between human touch and technology use. Fintechs are growing for a reason; the number of customers who prefer online banking is rising. PwC’s 2017 and 2018 Digital Banking Surveys shed light on this, stating that banking customers favor an omni-digital approach to customer service. An omni-digital preference refers to customers who would rather interact with their bank online but aren’t abandoning their physical branches. Customers would like a choice, and community institutions that choose a fintech partnership can provide grander options.

Providing loan application solutions or the option to provide an electronic signature on financial documents allows the prospect to take action on his or her loan application immediately and saves time otherwise lost when visiting a branch. This is yet another example of how investing in technology means investing in customers and validates your institution’s emphasis on customer satisfaction for prospects. Today, competition among large banks, regional banks, alternative lenders, online-only banks and peer community institutions is unprecedented. Banks and credit unions that view technology in a positive light and tap into the power of digital solutions will be best equipped to manage risk and growth within their institutions.

If you’d like to learn more methods to better prepare your bank or credit union for the future – download Sageworks’ free eBook: Agile Bankers – How Community Banks are Addressing Disruption, Risk and Growth.

Additional Resources

Upcoming Webinar: Credit Risk Readiness: One Decade After the Recession

eBook: Agile Bankers: How Community Banks are Addressing Disruption, Risk and Growth

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tags: credit risk, deposits, ebook, technology