ICBA ThinkTECH: Know the Terrain

Fintech has evolved from startups that are looking to beat the traditional banks to a broad network of companies looking to leverage collaborative partnerships.

Fintech Questions

First of all, what do we mean by fintech?

Fintech is the intersection of financial services and technology. The innovation within this intersection is robust, and the positive impact to community banks is wide-reaching.


  • Digital wallets and real-time transactions bring instant payments and availability of funds to bank customers.
  • New lending platforms offer streamlined experiences and faster credit decisions.
  • Business intelligence solutions provide new ways for community banks to manage and anticipate customer activity
  • Transformed cloud infrastructures give banks more secure and efficient opportunities for data security and storage.

Fintech Terrain

Fintech's Wide-Reaching Terrain

Technology stands to alter the way banking transactions have been historically conducted in:

  • Lending
  • Finance
  • Business Intelligence
  • Liability Management
  • RegTech
  • Payments
  • Wealth Management
  • Marketing, Sales, and Consumer and Channel Management
  • Human Resources, Benefits, and Training
  • Cloud Infrastructure and Open Application Programming Interface (API) Business Model
  • Data and Analytics
  • Data and Cybersecurity

Fintech Strategy

The Strategic Opportunity

Amid the noise and disruption of fintech, one message is clear: Community banks are well-positioned to blend the strengths of their operations with fintech innovations.

For years, community banks have offered a customer-centric banking tradition that puts customers first. This advantage rings loud and clear to the fintech companies that view community banks as a strong performer in the customer service space. But this isn't the only advantage community banks offer. The various gains of potential collaboration or partnership are intriguing to many fintech companies.

The benefits for community banks, in partnering with fintechs, is clear too. Community banks have historically enjoyed a strong lead in customer satisfaction over their larger counterparts. To maintain and build on this competitive edge, community banks are looking closely at fintech partnership opportunities.

With customer preferences changing at an expeditious rate and expectations from users for a seamless omnichannel experience on the rise, disruption is occurring within numerous industries including financial services. Today’s community bankers understand that continued success is dependent upon the adaptation of banking practices to meet the evolving needs of the market. Fintech companies offer possible partnerships and collaborative relationships that can help community banks enhance the customer experience and promote mutually beneficial relationships. Community banking is successfully built on a relationship-based business model.  

Fintech began as a process of experimentation in efficient ways to use technology to deliver customer services. Initially, banks looked to fintech to upgrade their potential to serve a built-in customer base—think of the evolution of credits cards, ATM machines, automated telephone services, electronic bank records, online account access, remote deposit capture, Interactive Teller Machines (ITMs) and more. This history of smart evolution has proven very successful for the community banking industry.

Today, fintech is at a tipping point
—companies are not simply focused on enhancing customer experiences—they want to radically change and improve the way banking services are offered in the digital economy. Community banks that wisely engage with fintech will have an opportunity to do just that.

  • What is the community bank’s largest competitive concern?
  • In what area of the bank can fintech help achieve the highest returns? Attempt a cost-benefit analysis if there are competing considerations.
  • Does the bank have sufficient compliance staff to oversee a significant third-party relationship?
  • What will be the regulatory response?
  • Is the chosen path consistent with the bank’s strategic plan?


Fintech Banking

Benefits that Fintech Companies Offer Community Banks

Community banks can work with fintech lenders to provide critical banking services to underwrite consumer, mortgage, and commercial loans. This can expand bank access into new markets where fintech companies have greater penetration. For example, marketplace lenders or “MPLs,” leverage data collection and technology to provide access to credit with little to no physical overhead or distribution network. Small and medium-size banks often partner with MPLs when they do not have the internal expertise or resources to execute an online lending business model.

The baby boomer generation is winding down their earning and spending activity. Over the next 25 years, nearly 81 million U.S. millennials (all of whom came of age after the digital revolution) will dominate the economy. Millennials demand financial services that focus on a more personalized experience and emphasize seamless/on-demand access to the service from the underlying product. Fintech companies are eager to meet millennials’ preferences.

Given their nimble nature, community banks are well-positioned to take advantage of the opportunities in the fintech landscape—opportunities that present potential gains in fee income, reductions in risk and fraud, increased efficiency, and improvements to the customer experience.

Community banks partner with fintech companies to offer new, innovative services. To be successful, banks will need to work with fintech partners to develop marketing and financial branding strategies that carry forward the bank’s brand in a digital world. Customers may demand more universal banking automation and transformed branch experiences, all of which will need to be communicated through community bank’s brand messaging.

In a survey, nearly 50 percent of community bankers responded that enhancing customer experience is the driving reason for investing in new and emerging technologies. Community banks see partnering with fintech as a means to strengthen customer and community relationships and can be more nimble than their larger counterparts when implementing new technologies.


Benefits that Fintech Companies Offer Fintech Companies

Fintech companies need the reliable access to liquidity that insured deposits
provide. Seemingly every decade, markets are disrupted and there is a flight to reliable sources of liquidity.
Absent bank funding, some fintech firms may not survive the inevitable ripple in the securitization market. Commercial lending relationships can be structured to fit the liquidity needs of a variety of fintech companies.

Fintech companies also have many advantages. They are not burdened with physical distribution costs and may have reduced overhead at least on a per loan basis, which provides cost advantages that banks can pass on to their customers. In addition, fintech’s innovative data gathering tools can help banks find new ways to perform old tasks (like credit underwriting) and leverage existing infrastructure to create new products and tap unserved markets. But, to be successful, fintech companies need something banks already have—a stable customer base. To that end, the advantage lies with the banks. As fintech players expand and garner market recognition, however, they have the potential to control the customer interface and then offer banks slimmer margins for the business developed. The rapid pace of change in fintech has another inherent disadvantage for banks—banks must constantly work to ensure that stability and profitability stay ahead of ever-evolving risks from their business partners and regulatory obstacles. That means a bank must ensure that its fintech company partner shares the bank’s philosophies including the treatment of its customers—regardless of the model chosen by the bank.

Community banks, often long-established pillars of a local community, offer start-up fintech companies the institutional credibility that may help convince customers to use the fintech’s services. In addition, community banks offer fintech customers deposit insurance coverage and expertise with the regulatory environment.

Fintech companies in the payments space will require access to community banks’ settlement infrastructure to process and settle payments. Fintech companies can leverage community banking’s regulatory and compliance infrastructure to help meet compliance burdens.

Fintech Planning

Did you know?

For ICBA member banks, the top three areas for fintech solutions that currently support business strategies include:

  • mobile banking
  • payments and commerce
  • cybersecurity

followed by:

  • data and analytics
  • cloud infrastructure
  • artificial intelligence

Strategic Planning & The Bank Board

The board of directors should consider how fintech could complement and support the bank’s overall strategic direction, and incorporate a discussion of fintech projects within the bank’s strategic plan.

Have a process: A board of directors should also have a process for annually updating and approving their strategic plan, and for updating the plan on an ad-hoc basis between annual reviews. Those same processes should apply to fintech projects—if a fintech project rises to the level of business materiality that would generally require board approval and inclusion in the strategic plan, the fintech project should be approved by the board and incorporated into the strategic plan before material progress is made on that particular project.

Return on Investment

A bank’s monetary return on investment (“ROI”) for fintech related projects is difficult to predict with certainty. Experts believe returns to be incremental in nature and most financial institutions investing in fintech estimate an expected annual rate of return of approximately 20 percent globally. The rising customer expectations for a streamlined, mobile, and innovative banking experience make investment in fintech a more prudent allocation of resources.

A major factor in the ROI for any bank is whether the fintech solution is aligned with the bank’s overall business strategies.

Short Term and Long Term Costs

Costs may be incurred in connection with capital investments in a fintech company, the acquisition of new systems to deliver products to customers, and any ongoing fees required to maintain the products and services.