A spark in the marriage
Many see the current downturn as the opportunity that could finally spark the marriage between community banks and technology en masse — a relationship that has been tepid and reluctant on both sides.
Banks are hardly known for rapid change but that’s exactly what they were forced to do as a result of the global pandemic, which changed the way people worked and interacted with each other. Traditionally, banking services require a personal touch between bankers and customers. Few images are more symbolic than a handshake to signify an agreement or deal between parties. Banks had to pivot to allow their customers remote access to their accounts and services, as well as adjust on several other fronts.
Economic opportunity
Financial services and technology companies also used the pandemic to fill this gap on their own, using what felt like endless amounts of capital that had little to no expectation for a return on investment, startup speed and a lack of government oversight as a way to peel away market share and permanently shift customer expectations.
However, now we can see the difficult economic road ahead has put limits on that spending. Regulators and elected officials are no longer silent observers. All of this has changed the strategy for many tech companies. They are now looking to partner with community banks.
Ernst & Young wrote, “The bank of the future will integrate disruptive technologies with an ecosystem of partners to transform their business and achieve growth … Innovation and business-led transformation will be critical for future growth. To remain competitive and relevant, every bank must embrace disruption and strategically build a better ecosystem — not a bigger bank.”
Like the pandemic, the gloomy economic reality presents both parties an opportunity to adopt a unified Banking as a Service (BaaS) strategy. Solarisbank’s James Bessenback aptly defines BaaS as licensed banks that enable other businesses to integrate digital banking and payment services directly into their own products. It works by serving as the business’ front-end, connected to the BaaS provider via an API, allowing the business to offer digital lending services, account management and payment services themselves in their own apps and websites.
Getting the most of your budget
The point is not lost on community banks. A 2022 Bank Director survey of directors and C-suite leaders at U.S. banks with less than $100 billion in assets responded that their median tech budget increased approximately 11% from 2021 to 2022. According to the survey, the median 2022 bank tech budget sits at $1 million. The most common technology spend was on cybersecurity, followed by security/fraud, data/analytics and risk/compliance.
Andy Copsey, former Handelsbanken UK chief operating officer, said, “The new-to-market and in-progress new community banks are taking the opportunity to use modern banking tech, unburdened by legacy systems. They need the tech to keep costs down and deliver the service their market segment requires — which is both clicks and bricks — as well as quality staff to provide the advice that their customers want but increasingly feel unable to find because their existing bank is closing its branches and removing named account managers from all but the larger SMEs and large corporates.”
Here at TBA, we’ve seen increasing interest from banks wanting to learn and partner with tech companies through our Community Bank Innovation Magnet. Among other things, the Magnet platform gives banks a place to collectively seek out necessary tools from interested partners.
We’ve seen community banks throughout Texas already take steps and even thrive in this new environment. While a lot of inroads have already been made, there is still much more that can be done. Just know there are tools and platforms that can help bankers and tech companies achieve a mutually beneficial outcome. There may not be a better time to explore options.