Taken from the blog of Joe Casali, AAP, NCP, EVP, Payments Innovation, NEACH.
Technological advances, ongoing innovation, and changing customer and societal norms all contribute to the shift we are seeing in the financial services industry. More and more, financial institutions are moving away from viewing FinTechs as competitors to valuing them as collaborative partners for innovation. Partnerships between financial institutions and FinTechs are becoming more common, enabling even small financial institutions to compete in the race for innovation.
Michelle W. Bowman, Governor of the Federal Reserve’s Board, recently shared her thoughts on the subject. In an April 11, 2019, speech delivered at the “Fed Family” luncheon at the Federal Reserve Bank of San Francisco, she addressed the topic of community banking in an age of innovation. Bowman, in her opinion, sees partnering with FinTechs as an opportunity for community banks to remain relevant:
FinTech is just the latest evolution of a long history of community banks leveraging technology to provide financial services… community banks offer potential FinTech partners a consumer-first approach to business and several advantages: deposit insurance and liquidity; a stable customer base; credibility in a local community; and settlement and compliance services.
I believe that if a bank has not started thinking about how innovation may impact its business, it is very late to the game. It does not mean that every bank has to run out this afternoon and partner with a FinTech firm—there may be all kinds of thoughtful reasons not to engage with them. What matters is that banks, particularly community banks, have gone through the process of thinking about the relevant issues.
Also weighing in on the topic is the Office of the Comptroller of the Currency in its “Semi-Annual Risk Perspective” from the National Risk Committee. In it, they wrote:
It is essential for management at banks of all sizes and business models to consider innovation and emerging industry trends in their strategic planning processes. Strategic planning should include a discussion of the evolving needs and preferences of existing and potential future bank customers. Failure to appropriate consider innovation and the responsible adoption of technology could pose a strategic risk to some banks.
As a community bank, you may be wondering if now the right time to partner with a FinTech. How can a financial institution find a suitable partner with so many options available? The answers to these questions vary based on the individual financial institution. While there are no one-size-fits-all answers to these questions, the best place to start is by joining the conversation.
These types of conversations can occur at conferences and industry events. NEACH’s 2019 Innovating Payments conference, October 9-10, 2019, at the Hilton Boston Logan Airport brings together financial institution executives and FinTech players to provoke discussion and foster innovative solutions.