By Adam Thomas, Dixon Hughes Goodman LLP
As banks seek innovation and efficiency, now is a prime opportunity to consider a strategy targeting financial technology (fintech). Evaluating the risk appetite for fintech can be beneficial not only for increasing technology and digital transformation but also to bolster customer acquisition efforts. In this article, we will explore business structure options as well as benefits from this alliance.
What Does Fintech Mean to Your Financial Institution?
Fintech can be hard to define, as the term means something different to each institution. While some think of fintech as technology that they can utilize for their own internal processes or efficiency models, it can also mean technology to increase customer acquisition, enhance customer experience or provide new service offerings. An already prevalent trend that may perhaps be accelerated by the COVID-19 pandemic, particularly as many branches remain closed, is the need to target current and new customers attracted to mobile services who are looking for digital banking solutions. Since customer acquisition and retention are important for continued growth, customer experience strategy is crucial — and fintech can enhance that experience by offering cutting-edge technology, sleek interfacing and future-focused solutions. The correlation between fintech and customer acquisition can also extend to enhancing the social impact through technology that could ultimately help customers develop good financial habits or help underserved communities obtain access to banking products that may not have been accessible previously.
Develop a Strategy
Fintech is based on innovation and often disruption, so begin any fintech strategy discussion by first asking how and where you can move away from more traditional methods to digital ones. This process usually starts with the board of directors discussing strategy development and exploring efficiency opportunities. Consider how you can incorporate thought diversity within the board related to fintech, how the bank can help customers save and invest in new and improved ways and how new customers could see advantages to opening an account. The banks that are the most innovative and future-focused often have a fintech representative on the board of directors, who is responsible for challenging the status quo, asking “why,” and stretching the institution to continuously seek new products and processes. Additionally, you can also begin conversations with the board of directors to determine how the fintech strategy should align with your institution’s risk management process and fit with the preferred risk appetite, such as if the bank wants to be cutting edge, bleeding edge or continue on a more traditional path. Exploring these options to initiate your bank’s fintech strategy at the board level will increase any fintech strategy’s effectiveness.
When considering how fintech fits into the overall customer acquisition strategy and experience, go well beyond the bank’s internal processes and efficiency models. If there is no robust customer acquisition plan in place, efforts should be made to understand how the bank obtains customers, particularly behind the backdrop of the COVID-19 pandemic. An example of a sophisticated fintech customer acquisition strategy would be using data analytics to identify current bank customers that are only utilizing one product, such as a checking or savings account, and then cross-selling other services to customers based on their needs. Another customer acquisition strategy could be built around identifying underserved or underbanked populations and directly targeting those groups with customized banking products. Other strategies could provide unique services to obtain new customers, such as robo-investing using artificial intelligence to help make investing decisions, therefore keeping costs down for both the bank and the user or providing lending products for borrowers trying to establish or improve their credit scores. As such, there are many ways these strategies could manifest as banks explore their options.
When considering how fintech fits into the overall customer acquisition strategy and experience, go well beyond the bank’s internal processes and efficiency models. If there is no robust customer acquisition plan in place, efforts should be made to understand how the bank obtains customers, particularly behind the backdrop of the COVID-19 pandemic.
Strategy Implementation Considerations
As banks look to implement their fintech strategy, a few tactics can be used to become a thought partner with the fintech industry by participating in the fintech ecosystem rather than reacting to its disruption. Some banks may consider finding a fintech vendor partner, which can be a straightforward approach through your bank’s existing vendor management process. Others may seek to create their own internal development team, consisting of engineers on staff who can develop their own technology; however, this instance is typically rare for community banks and may not always make the most financial sense, depending on access to resources and budget.
Perhaps one of the best integration tactics is to participate in the fintech ecosystem in some way that ties directly to the bank’s fintech strategy. This participation can manifest in a few different ways:
- Consider investing directly into companies that further the bank’s fintech approach;
- Explore potential joint ventures with other companies in some form of partnership;
- Investigate options for buying or acquiring a company that aligns with the fintech plan.
