It’s no secret that the Fintech world is exploding. And while some innovations, like mobile banking apps, are marvelous opportunities for community banks to improve customer service and solidify their customer base, there are some scary trends at play that could radically transform banking as we know it and spell bad news for smaller banks.
They’re called disruptors. These changes in technology and regulation are shattering the mold of traditional banking, which may have a devastating impact on smaller community banks. Listen to what Matt Burton, the CEO of Orchard Platform, told a small conference of bankers and Fintech folks at a 2014 gathering, as reported in the May 16 online edition of American Banker.
“Banks will wake up and an entire generation of customers will [have] left,” Burton said in the American Banker piece.
In the same story, Simon Hermiz, the founder and CEO of NoteX360, which provides international investors with alternative lending products, said these emerging disruptors put smaller banks at risk.
“(Smaller banks) are most in need of tech solutions to cut costs and become more efficient with lending,” he said.
In response, some smaller institutions are engaging in partnerships with these alternative Fintech firms to become more agile.
Golden Pacific Bancorp, partnered with Better Finance to start an automated loan platform to reduce underwriting costs. This means that the bank can make smaller business loans that in the past would not have been worth the time, American Banker reported.
Golden Pacific is selling the technology – known as SmartBiz – to other banks.
The Europe-based Innovation and Strategy Blog, reported that there are three major disruptors of banks. Jean Yves Bruna, a chief strategy and development officer for a leading European banking software firm, cited three major disruptors:
- Retail companies that have expanded into consumer credit, a sector once the exclusive domain of banks.
- Telecommunications firms that offer services like M Pesa and other digital wallet services.
- Internet giants like Google and Apple, that are making inroads with Google Wallet and Apple Pay.
There’s a fourth player in the disruptor mix –Cryptocurrencies like Bitcoin, though exactly how much of an impact it will have remains on the table for debate. For the moment, cash remains king.
But some discount the gloom and doom scenario when it comes to disruptors. In an August, 2015 article in thefinacialbrand.com, Jim offered several winning strategies to weather the storms of digital disruption:
- Assign Transformation Roles: Leaders of traditional financial instructions will have to support the necessary technological changes, think through those changes on their traditional banking model and respond to the trends, as well as the desires of customers;”
- Adopt a “digital mindset. This involves an evolution in the external and internal culture. In short, rethink all of your processes through a digital lens.
- Monitor the Marketplace
- Slow the disruption: This may involve a reduction in fees in order to better challenge the competition.
- Exit strategies: The failure to respond well to digital disruption can devastate once-flourishing businesses – like Circuit City – and traditional media (newspapers). Either respond now, or die later to the technological changes. To borrow from Warren Buffett, the “moat” that once made certain sectors of the economy invincible is shrinking.
- Diversify: Innovation and partnerships are critical. Transformation is not optional. Community banks need to be ready with the next sensation before a new player joins the market fray. To borrow from the nursery rhyme, be nimble and be quick.
Read the full articles:
“Three Types of Disruptors Banks Needs to Watch”
“How Banking Can Survive Digital Disruption”
