The fintech revolution has had a dramatic impact on the financial services industry. As customers turn to new products, traditional banks need to adapt in order to stay relevant.
Collaboration is key to success in this environment. Established banks can help fintech startups navigate and adhere to applicable regulations. Innovators, on the other hand, can help banks offer their customers more convenient and efficient service.
This is an optimistic but realistic perspective. However, it overlooks small, regional banks. Large financial institutions have the reputation and resources necessary to partner with fintech companies. This process may not be so easy for smaller banks.
Luckily, that doesn’t mean these institutions will be left behind. They can also adapt to the changing industry. The following are a few ways they might accomplish this:
Form Partnerships with Other Small Banks
Regional banks often rely on larger vendors for data management. This makes the process of creating fintech solutions challenging. Smaller institutions may have limited funds for product development. The fact that they have to test any innovations they develop to ensure they are compatible with their vendors’systems adds another layer of complexity.
That’s why several of these smaller banks have begun to collaborate. They’ve pooled their financial resources and established cooperative research teams to determine where they should focus their attention as it pertains to digital development. Additionally, by establishing partnerships, they’ve made it easier for each small bank in the group to get the attention of fintech startups.
Work with Incubators
Again, small banks may find it difficult to engage with fintech startups on their own. They can’t offer the same resources that larger financial institutions can. However, they can participate in fintech accelerators. These programs offer funding, office space, education, and other key resources to fintech startups.
Smallbanks can work together to engage with accelerators. Participating banks get early access to new products that emerge from them. This will help them stay on pace with the technological development of larger competitors.
Connect via Trade Associations
It’s clear that small banks are more likely to attract fintech innovators when they work together. However, they need to forge those connections first. That’s why trade associations are valuable. Experts point out that banks can network via trade associations to form partnerships.
At first glance, a fintech innovator may not believe a partnership with a small community bank will much value. However, these relationships can actually be highly beneficial to everyone involved. Small banks simply need to understand how to highlight the right benefits.
For instance, even a strong fintech product won’t succeed if there isn’t a plan for attracting customers. Small banks have an advantage in this capacity. Their customers tend to be extremely loyal. Thus, by partnering with a community bank, a small fintech startup can get its product in users’ hands fairly easily.
This can also be useful from a branding perspective. Creating a trustworthy brand is extremely important in fintech. Customers need to know they can rely on a financial services provider to handle their data safely and responsibly.
It’s difficult for a new startup to establish its credibility when it doesn’t have a track record. That’s yet another reason fintech companies can benefit from partnering with regional banks. These institutions are often highly respected in their communities. They’ve already established trustworthy brands. That means they can offer that same degree of credibility to a newer firm.
Offer Access to Liquidity
Fintech startups need access to liquid funds to survive. This is another benefit that small banks can highlight when approaching firms. By partnering with a bank, a startup can gain access to liquidity.
In return, the bank can obtain early access to the products that are developed.This type of agreement is a smart way for emerging fintech companies to stay safe in a volatile investment market.
A recent report indicates that fintech startups have begun to pay more attention to small banks when considering partnerships. That’s because they’ve identified yet another benefit offered by regional banks: agility.
Large financial institutions often make decisions too slowly when forming partnerships. The bureaucratic structure of the institution simply gets in the way of making fast changes.
That’s not the case with small banks. There are fewer people involved in the decision-making process. This means startups looking to work with collaborators who can adapt to their needs quickly often have more success with smaller institutions.
Additionally, the relationship is more likely to be mutually beneficial. Small banks know they need to adapt to survive the fintech revolution. Larger banks may be less concerned about the changing industry. Thus, they may be less inclined to work with a startup in a way that benefits both parties equally.
These are all reasons to believe that fintech will actually help small banks. Instead of threatening their relevance, fintech can help these institutions better serve their customers. These points demonstrate how that can happen.