Financial Brand recently published an excellent article on seven lessons fintechs can learn from banks. Catchy title, don’t you think? My immediately thought is that I don’t want the fintechs to learn ANYTHING from banks! I thoroughly read and reread the article. I’ll share the seven lessons with you below, but I want to be clear that the seven lessons highlighted in the article represent the clear advantages banks have OVER fintechs. As such, we need to be capitalizing on these advantages. The seven advantages: Understanding and adhering to regulatory requirements is crucial for long-term stability Effectively managing risk, including credit and operational risk, is vital for sustainable growth Building and maintaining customer trust through robust security measures and transparent practices is essential Planning for scalability and ensuring the sustainability of business models is key for long-term success Having a reliable and scalable technological infrastructure is essential. Integrating with existing financial systems may be necessary Diversification of financial services can help meet the varied needs of a broad customer base Partnering and collaborating with other industry players, including traditional banks, can open avenues for growth and innovation Let’s examine each of these advantages and how you should be exploiting them to your benefit. Adhering to Regulatory Structure – A common complaint from bankers is the lack of regulatory structure by fintechs that are playing at being a bank without having the same regulatory scrutiny. As much as bankers complain about the level of compliance burden (after all, we are the second most regulated industry, right after nuclear plants…) that compliance goes a long way to provide a sound banking infrastructure for our customers. When something negative does happen with a bank, it throws panic into the general population. Yet, dozens of fintechs fail each year, many of them have acquired deposits via their flashy online marketing offers with nary a whiff of publicity or public concern. Some community banks had an aggressive campaign of proactively educating customers on the strength of their balance sheets. Furthermore, we need to constantly reinforce the strength of our regulatory compliance and not just when bad news hits. Effectively Managing Risk –Community banks are well managed and carefully manage risk to not get into a situation similar to Silicon Valley Bank. I saw many FIs use that message effectively in their post-SVB failure social media posts and customer communication. It is important for your customers to understand that while the potential for risk exists for every financial institution, each FIs effective management of risk makes a big difference in how likely it is that a given institution faces an adverse risk event. You may not need to provide all the gritty details about your risk mitigation but do message that a) you recognize that mitigation of risk is extremely important and b) you do not take on risky activities and c) you carefully monitor the risk you do incur. Building and Maintaining Trust – Along with privacy, trust is one of the two bedrock elements that are the very foundation of who we are as financial institutions. I heard trust best explained as a deposit account. Every day, by the aggregate actions of our institution, we build up an account of trust with our customers. If, from time to time, we have an event that erodes that trust, but the overall trust “account” is flush, it is not a terminal issue. However, if you make too many withdrawals from the trust account, there will be a point where the trust with your customers is lost. At that point, it is nearly impossible to get the account back in good standing. This is one account that you need to monitor hour by hour, guarding against anything that reduces your customers’ trust in you. Ensuring Sustainability – This is a very timely and important issue. Balance sheets and income statements look pretty good for most FIs today, which makes it hard to look ahead in time and make adjustments now for coming changes in customer demographics. Your best, most profitable customers are aging and when they pass, where will those deposits go? Can you guarantee they will pass on to the Gen X children who might bank with you? Or maybe to millennial and Gen Z? grandchildren, who have no meaningful relationship with your institution? The ability for a bank to successfully attract and retain young millennials and Gen Z customers is the greatest single factor in ensuring sustainability. The adjustments in marketing and advocacy, both in terms of the message and where you place those messages will make the difference in whether you get those younger ears to listen. Reliable Technology Infrastructure – Many FIs have deployed a serviceable online/mobile digital technology platform, but tomorrow’s younger customers will have an expectation of more, a lot more. They are digital natives, holding a device in their hands since they were babies. They know what a good customer experience is. If they find your digital experience wanting, they will not adjust. They will abandon it altogether. That will certainly not get them to stay as customers, which as we mentioned in the previous paragraph is THE key to long term sustainability. Diversification of Services – It is likely that your FI is a full-service institution and banks consumer and business customers. Perhaps you have a specialty, you focus on banking small to medium businesses (SMBs) where you can really pour your efforts into securing a foothold for SMBs in whatever geographical area you serve. Yet, maybe you have been specializing in something that is down at the moment, such as commercial real estate. Creating long term diversification is necessary to avoid any one sector of your income that may be short or long-term impinged. Pay attention to what is happening in your markets or within your government. If recreation cannabis were to become legal in your state, and the Cole Memo were to be reinstated, then there would be opportunities for producers, manufacturing, and retailers. Your ability to ramp up banking services from seed to sale could be the very type of future diversification you should be exploring. Partnering and Collaboration – At the end of the day, very few community financial institutions can “go it alone.” It would take too much capital, too much time and incur too much risk. Therefore, it makes sense to find partnerships, and this means truly partnering, not just licensing a vendor’s solution. One option for partnering is to examine what you might need to deploy in five years, then determine what it would take for a vendor to create what you need. Could you form a partnership with an existing vendor to build what you need? Or perhaps you form a consortium with other like-minded FIs that are all looking for the same or similar technologies. There is no guarantee your investment will turn out to be a “unicorn,” but if you get a service or solution that addresses a specific technology hole and targets young millennials and gen z customers, it will be money well invested. One last thought, I see some community financial institutions starting their own “internet only” web presence, complete with different branding. From my perspective, l see no reason why these instances of internet banking would be any more successful than the fintech version that we have already seen come and go. Better would be to pour your capital into making your everyday digital banking suite the most compelling and engaging application that any young person could have imagined. Resources https://thefinancialbrand.com/news/fintech-banking/7-lessons-fintechs-can-learn-from-banks-173919/#:~:text=Fintech%20firms%20can%20draw%20valuable,and%20the%20power%20of%20partnerships. The views expressed in this blog are for informational purposes. All information shared should be independently evaluated as to its applicability or efficacy. FNBB does not endorse, recommend or promote any specific service or company that may be named or implied in any blog post.