5 Key Factors for Fintech Partnerships

Written by

As banks explore ways to expand their products and services, many are choosing to partner with fintech companies to enhance their offerings. These partnerships are valuable opportunities for a bank that otherwise would not have the resources to develop the technology or expertise in-house to meet customer demand.

However, banks need to be cautious when partnering with fintech companies — they are subcontracting critical services and functions to a third-party provider. They should “dig in” when assessing their fintech partners to reduce the regulatory, operational and reputational risk exposure to the bank. There are a few things banks should consider to ensure they are partnering with third party that is safe and reputable to provide downstream services to their customers.

1. Look for fintech companies that have strong expertise and experience in complying with applicable banking regulations.

  • Consider the banking regulations that apply to support the product the fintech offers, and ask the provider how they meet these compliance standards.
  • Ask about the fintech’s policies, procedures, training and internal control that satisfy any legal and regulatory requirements.
  • Ensure contract terms clearly define legal and compliance duties, particularly for reporting, data privacy, customer complaints and recordkeeping requirements.

2. Data and cybersecurity should be a top priority.

  • Assess your provider’s information security controls to ensure they meet the bank’s standards.
  • Review the fintech’s policies and procedures to evaluate their incident management and response practices, compliance with applicable privacy laws and regulations and training requirements for staff.

3. Engage with fintechs that have customer focus in mind — even when the bank maintains the direct interaction with its customers.

  • Look for systems and providers that make recommendations for required agreements and disclosures for application use.
  • Select firms that can provide white-labeled services, allowing bank customer to use the product directly.
  • Work with fintechs that are open to tailoring and enhancing the end-user customer experience to further the continuity of the bank/customer relationship.

4. Look for a fintech that employs strong technology professionals who can provide a smooth integration process that allows information to easily flow into the bank’s systems and processes.

  • Using a company that employs talented technology staff can save time and money when solving technology issues or developing operational efficiencies.

5. Make sure your fintech has reliable operations with minimal risk of disruption.

  • Review your provider’s business continuity and disaster recovery plans to make sure there are appropriate incident response measures.
  • Make sure the provider’s service level agreements meet the needs of your banking operations; if you are providing a 24-hour service, make sure your fintech also supports those same hours.
  • Require insurance coverage from your provider, so the bank is covered if a serious incident occurs.

Establishing a relationship with a fintech can provide a bank with a faster go-to-market strategy for new product offerings while delivering a customer experience that would be challenging for a bank to recreate. However, the responsibility of choosing a reputable tech firm should not be taken lightly. By taking some of these factors into consideration, banks can continue to follow sound banking practices while providing a great customer experience and demonstrating a commitment to innovation.

Powering the Web of Partnerships to Make Innovation Easy

Written by

The right platform can help banks accelerate innovation, navigate the changing tech landscape and offer next generation solutions to customers. Public clouds are the platform to achieve these outcomes.

The cloud has moved from an ambiguous and amorphous buzzword to the platform that powers much of the innovation happening in the financial industry. Clouds, like Microsoft’s Azure, serve as the modern foundation banks, digital cores and other fintech firms use to build, develop, house and host their solutions. Participating in the cloud eco-system allows these players to seamlessly integrate with each other to expand their customer reach, take advantage of pre-built accelerators, and access third party fintech solutions. This ecosystem, with its multiple connection points, when housed on the same cloud means innovation can happen faster — at every level.

That accelerated innovation is crucial to small and mid-sized banks like Hawthorn Bank, a subsidiary of the Jefferson City, Missouri-based Hawthorn Bancshares. Banks must balance providing high-quality customer service and relevant products to customers while keeping up with nonbank and big bank competitors, but have limited staff and capacity for adding new tech projects and offerings. Hawthorn wanted to add more services and solutions for its business customers, like expedited online and in-person payments, which didn’t always fit into its traditional suite of offerings.

Hawthorn didn’t realize it at the time, but belonging to the right cloud network helped it address a number of their business customer’s pain points. The $1.7 billion bank relies on Jack Henry’s Banno digital banking platform, which now offers embedded invoicing and digital payment acceptance functionality through a partnership with Autobooks, as well as the full Autobooks small business solution as a seamless add-on to Banno platform users.

Both Autobooks and Jack Henry reside in Microsoft Azure, which made it easy for Banno to incorporate Autobooks as an additional service, as well as for Hawthorn to flip a switch to enable the service. And Autobooks proved to be a complementary, revenue-generating solution that Hawthorn Bank could bring to its business customers.

Examples like this show how coexisting in a cloud ecosystem can remove friction at all levels of development, deployment and integration. This has several benefits for banks and the end user. Being in the same cloud means that fintechs like Autobooks and service providers like Jack Henry can roll out new features and updates to their banks faster. It also helps banks control their third-, fourth- and fifth-party risks, which regulators have highlighted as a way to manage operational and cyber risk.

Selecting that cloud provider, however, starts with trusting the tech company as a secure partner who can meet regulatory expectations. Azure’s developers engage with more than 200 global financial regulators to meet compliance and security requirements, including hosting an annual summit to discuss new regulations and threats. Microsoft also accompanies regulators during audits at financial institutions. And Microsoft works with banks at the platform level to help them navigate projects with other partners, including audit, analytics and other digital banking overhauls and core integrations.

A relationship that close requires shared values — and increasingly, banks are noticing that some of their vendors may not be true partners. A number of large tech firms providing cloud, analytics and platform services to banks are also developing financial products on the side that could compete directly for the bank’s customers. Banks may find that their big-tech cloud provider doesn’t share their values or definition of partnership or compliance; they may treat private customer data differently. The ultimate risk for banks is that they partner with a firm that could one day become a competitor. Banks should look for cloud providers with a proven track record of staying focused on delivering value to the institution.

Community banks like Hawthorn are constantly looking for ways to serve customers better through innovative products and services, while keeping a close eye on costs and managing employee workloads. The right digital platform, powering their service providers and fintech partners alike, is key to unlocking and accelerating their digital transformation.

Five Fintech Solutions Every Bank Should Have

Written by

If Money 20/20 was any indication, it seems like banks are finally ready to really embrace fintech. Small and medium-sized banks have realized that their technology budgets can be used for things other than building and managing technology in-house to keep up with large financial institutions with big budgets and neobanks with brand new tech stacks. A tech stack is the combination of technologies a company uses to build and run an application or project, and typically consists of programming languages, frameworks, a database, front-end tools, back-end tools and applications connected via APIs.

For banks starting to explore fintech partnerships, we’ve compiled a list of the top five fintech solutions every bank should have in its tech stack today.

1. Account Opening Platform
New customer acquisition is one of the most important components of a successful financial institution. An online account opening platform powers an omnichannel interface to onboard new customers quickly and seamlessly. A good account opening platform should also provide a customizable user interface, increased account conversion rates and detailed reporting.

2. Identity Decisioning Platform
An identity decisioning platform, or IDP, automates identity and risk decisions across the lifecycle of your customer. IDPs power smart decisions that can reduce risk for your business while providing a frictionless customer experience for identity verification and onboarding, ongoing transaction monitoring and credit underwriting.

IDPs are the decision engine behind the account opening platform that helps banks determine whether to accept or reject an applicant. It continues to monitor that client’s account activity and powers underwriting decisions. Your IDP should connect to multiple data sources through application programming interfaces, or APIs, allowing you to add and change data sources as needed. By bringing all of your identity and risk decisions into one platform, you’ll see a holistic view of your customers and automate more decisions.

3. Open Banking Platform
Your customers expect to be able to access their financial data across various apps. Open banking platforms make it easy for banks to securely share data with third-party businesses through an API that allows customers to connect their banking data. Open banking platforms are the key component connecting your bank to popular apps like peer-to-peer payments, financial management and cryptocurrency investments.

4. BaaS Platform
You’ve probably noticed the trend of non-bank businesses beginning to offer financial products. This trend is powered through BaaS, or banking as a service, platforms. BaaS platforms enable a third-party business to integrate digital banking or payment services directly into their products by connecting them with a bank. This model allows non-financial institutions the ability to offer a financial product without getting a banking license. Unlike open banking platforms, which share the financial data within a bank account to a third-party business, BaaS platforms transfer the complete banking services into a third-party business’s product.

5. Know Your Transaction Solution
If your bank is starting to think about how to approach cryptocurrency and digital assets, one of the first things you’ll need is a Know Your Transaction, or KYT, provider to complement your Know Your Customer (KYC) procedures. KYT solutions help you remain compliant with anti-money laundering laws when monitoring crypto transactions. A KYT solution allows banks to track crypto funds and ensure they are not coming from mixers (a service that mixes streams of cryptocurrency to improve anonymity and make it more difficult to trace), foreign exchanges or blacklisted addresses.

Fintech companies can provide a lot of value to banks. Many of them are built to plug into your existing infrastructure and be up and running in weeks. They can help banks be more agile and adapt to new customer needs faster, save banks money on engineering resources and bring focused expertise to their category. Alloy also has resources available to help banks select fintech partners and build out their tech stacks.

A Seller’s Perspective on the Return of Bank M&A

Written by

Any thoughts of a lingering impact on mergers and acquisitions as a result of the 2020 economic downturn caused by Covid-19 should be long gone: 2021 bank transaction value exceeded $50 billion for the first time since 2007.

Continued low interest rates on loans and related compression of net interest margin, coupled with limited avenues to park excess liquidity have made many banks consider whether they can provide sustainable returns in the future. Sustainability will become increasingly difficult in the face of continued waves of change: declining branch transactions, increasing cryptocurrency activity and competition from fintechs. Additionally, the fintech role in M&A activity in 2021 cannot be ignored, as its impact is only expected to increase.

Reviewing 2021 M&A transactions, one could argue that the market for bank-to-bank transactions parallels the current residential home market: a finite amount of supply for a large amount of demand. While more houses are being built as quickly as possible, the ability for banks to organically grow loans and deposits is a much slower process; sluggish economic growth has only compounded the problem. Everyone is chasing the same dollars.

As a result, much like the housing market, there are multiple buyers vying for the same institutions and paying multiples that, just a few years ago, would have seemed outlandish. For sellers, while the multiples are high, there is a limit to the amount a buyer is willing to pay. They must consider known short-term gains in exchange for potential long-term returns.

For banks that are not considering an outright sale, this year has also seen a significant uptick in divestures of certain lines of business that were long considered part of the community bank approach to be a “one-stop shop” for customer needs. Banks are piecemeal selling wealth management, trust and insurance services in an attempt to right-size themselves and focus on the growth of core products. However, this approach does not come without its own trade-offs: fee income from these lines of business has been one of the largest components of valuable non-interest income supporting bank profitability recently.

Faced with limited ability to grow their core business, banks must decide if they are willing to stay the course to overcome the waves of change, or accept the favorable multiples they’re offered. Staying the course does not mean putting down an anchor and hoping for calmer waters. Rather, banks must focus on what plans to implement and confront the waves as they come. These plans may include cost cutting measures with a direct financial impact, such as branch closures and workforce reductions, but should entail investments in technology, cybersecurity and other areas where returns may not be quantifiable.

So with the looming changes and significant multiples being offered, one might wonder why haven’t every bank that has been approached by a buyer decides to sell? For one, as much as technology continues to increasingly affect our everyday lives, there is a significant portion of the population that still finds value in areas where technology cannot supplant personal contact. They may no longer go to a branch, but appreciate knowing they have a single point of contact who will pick up the phone when they call with questions. Additionally, many banks have spent years as the backbone of economic development and sustainability in their communities, and feel a sense of pride and responsibility to provide ongoing support.

In the current record-setting pace of M&A activity, you will be hard pressed to not find willing buyers and sellers. The landscape for banks will continue to change. Some banks will attack the change head-on and succeed; some will decide their definition of success is capitalizing on the current returns offered for the brand they have built and exit the market. Both are success stories.

Fintechs Are Starting to Buy Banks, But Why?

Written by

A common maxim in the mergers and acquisitions industry is that very small banks have a tough time finding buyers. But last week, we learned there’s an exception. And it comes from financial technology companies, one of which announced plans to buy a $154 million bank in Seattle called First Sound Bank for $23 million.

The acquirer is BM Technologies, the Radnor, Pennsylvania-based technology company that was spun off from Customers Bancorp earlier this year and trades on the New York Stock Exchange. The price translates to a premium of 166.4% for the bank, which trades on the pink sheets, according to investment bank Hovde Group.

“Fintechs are getting more aggressive in buying small bank charters,” says Curtis Carpenter, senior managing director for the investment bank Hovde Group, which was not involved in the deal. Fintechs may also be willing to pay more for a small bank than another bank will. For a large fintech company, getting access to a bank charter may be critical for their business plan going forward; paying an extra $1 million or $2 million may not be a lot of money for the fintech, but might be meaningful for the small bank.

It’s tough to see what kinds of premiums fintechs are paying for banks, because most fintechs are privately owned or the deals are so small, the financials sometimes aren’t disclosed. Granted, there are not a lot of U.S. financial technology companies buying banks. This year, there were six such announced deals. They included San Francisco-based SoFi Technologies’ planned purchase in March of $150 million Golden Pacific Bancorp in Sacramento, California, according to an analysis by Piper Sandler & Co. using S&P Global Market Intelligence data.

U.S. Financial Technology Companies Buying Banks

Deal announcement Buyer Target
Nov. 15, 2021 BM Technologies First Sound Bank
Aug. 2, 2021 Newtek Business Services Corp. National Bank of New York City
June 15, 2021 KMD Partners Liberty Bank
June 14, 2021 Cornerstone Home Lending The Roscoe State Bank
March 9, 2021 SoFi Technologies Golden Pacific Bancorp
Jan. 1, 2021 DXC Technology Co. AXA Bank AG
Feb. 18, 2020 LendingClub Corp. Radius Bancorp
Nov. 18, 2019 Crossroads Systems Rice Bancshares

SOURCE: Piper Sandler & Co. using data from S&P Global Market Intelligence

 

There’s not a lot of banks buying fintechs either, as Bank Director Vice President of Research Emily McCormick explored recently. Banks aren’t as interested in buying fintechs as they are interested in buying other banks, mostly because of cultural hurdles and lack of comfort with valuations, according to Bank Director’s 2021 M&A Survey. Fintechs, on the other hand, have started to get really drawn to bank charters, as Bank Director Managing Editor Kiah Haslett showed in her second quarter 2021 magazine story, “The Latest, Oldest Thing in Banking” (available with a subscription).

“I think there’s a phenomenon out there; what you want is a bank charter,” says Chris Donat, a managing director and senior equity research analyst at Piper Sandler & Co. “If you go back to the financial crisis, when Ally Financial created its bank, having a bank as a source of deposits to fund loans is generally one of your cheaper ways to fund loans and is also more stable.” Fintechs also get access to the national payment rail networks and the Federal Reserve’s discount window for liquidity purposes.

As fintechs grow their businesses, a stable source of low-cost deposits is incredibly useful. “They’re interested in the paperwork if you will, the charter, and not the deposit franchise of having branches and the loan officers,” Donat says.

BM Technologies will leverage the charter to grow its national digitally focused banking services, which include student loan disbursement services to 725 colleges and universities as well as banking services to about 2 million students, plus a flagship banking program with T-Mobile US, according to an analyst note from Michael Diana, managing director of Maxim Group. But BM Technologies will keep the community bank at First Sound Bank focused on the Seattle area. First Sound Bank CEO Marty Steele will lead the community bank division and serve as COO of the newly formed BMTX Bank, the two companies announced. BM Technologies’ CEO Luvleen Sidhu will serve as chair and CEO of BMTX Bank.

“Together we are looking forward to this partnership to create a nationwide deposit gathering and lending platform with the power to deliver an integrated customer experience at the highest level,” Steele said in a release about the deal.

Diana says First Sound is a successful community bank. Plus, BM Technologies’ acquisition means it avoids having to pay bank partners to hold insured deposits.  When online marketplace LendingClub Corp. bought Radius Bancorp last year for about $185 million in cash and stock, it was for a similar reason.

“It’s all about deposits,” Diana says. “You don’t have to pay anyone else for holding and servicing.”

Filling the Gap of Wealth Management Offerings to Grow Wallet Share

Written by

Americans need personalized financial and wealth management advice more than ever, but don’t know where to look.

The coronavirus pandemic negatively impacted personal finances for more than 60% of Americans, according to recent data from GOBankingRates. Many of these Americans have relationships with regional and community banks that could be a trusted partner when it comes to investing and planning for the future, but these institutions often lack adequate financial advisory resources and options. This drives customers to social media and other providers, such as fintechs or large national institutions, for wealth management needs — when they actually would prefer a personal, professional relationship with their bank.

The current need for stronger wealth management offerigns, coupled with advances in easy-to-deploy technology, means that community banks can now offer more holistic, lifecycle financial advice. These offerings have the potential to create new revenue streams, engage people earlier in their wealth-building and financial planning journey, deepen and fortify existing customer relationships and make financial advice more accessible.

But while many banks have a strong depositor base and a customer base that trusts them, the majority don’t have the expertise, resources or digital engagement tools to offer these services. Modern technology can help fill this gap, empowering institutions to offer more robust financial advisory services.

Banks should meet customers where they spend the majority of their time — within digital channels. Intuitive, self-service digital options presents a valuable way to engage customers in a way that’s not complex or requires additional staff in branches. First steps can include a digital calculator within the bank’s mobile app so individuals can compute their financial wellness score, or presenting simple options to customers to invest a nominal sum of money, then adding a way to monitor its progress or dips. It can also include a digital planning discovery tool to help customers organize their accounts online.

More meaningful success lies in leveraging customer behavior data to understand changes and designing processes so that individual can seamlessly move to the next phase of the financial advice lifecycle. This might include flagging when a customer opens additional accounts, when someone has a high cash balance and frequent deposits, or when a younger individual accrues more wealth that simply sits. If banks fail to proactively monitor this activity and reach out with relevant hooks, offers and insights, that individual is almost guaranteed to look elsewhere — taking their money and loyalty with them.

Banks should provide options for customers to reach out for guidance or questions around next steps — including knowledgeable financial advisors at the ready. While people are increasingly comfortable with (and establishing a preference toward) managing money and investments digitally, there is still a critical need for direct and quick access to a live human. Banks can integrating matching capabilities and staffing regional centers or branches with designated experts, but there should also be options for customers to contact advisors remotely through video or chat. This allows individuals to receive relevant advice and support from anywhere, anytime.

But building the infrastructure that can properly serve and support clients throughout every stage and situation can be prohibitive and cumbersome for most community and regional institutions. Fortunately, there are strategic technology partners that can offer a modern, end-to-end platform that spans the entire advisory lifecycle and offers integrated digital enablement right out of the box.

A platform, in lieu of a collection of bespoke software features from multiple vendors, can act as a single point of truth and provides a centralized ecosystem for customers to receive a holistic snapshot of their financial situations and plan. Look for platforms with open APIs to facilitate seamless integration to complement and maintain the front, middle and back office while offering a full range of functionality for bank customers. Plus, having one platform that can accommodate every stage of the financial advisory lifecycle makes interactions easier and more efficient for the institution, and more familiar and friendly for the customer.

Community and regional institutions have always served as a beacon of trust and support for their communities and customers. They don’t have to experience customer attrition over wealth management options and functions. Those that do so will be able to form even stickier, more profitable relationships, while helping customers broaden their opportunities and improve their overall financial wellness.

The API Band-Aid

Written by

Years before the Covid-19 crisis pushed the banking industry headfirst into a digital-forward ecosystem, many financial institutions felt stuck in place. While a few front-runners were making technological headway with modernized, adaptive core technologies — such as Deland, Florida-based Surety Bank, with $183 million in assets — many banks were tied to on-premises, decades-old systems. 

Still today, replacing the core — the backend system that processes all transactions — hasn’t become mainstream as a way to upgrade a bank’s technology. Instead, much of the industry seems to be moving toward a variety of outside solutions. 

And one of the most popular solutions has become application programming interfaces (APIs). In Bank Director’s 2021 Technology Survey, 63% of banks report using APIs.

APIs function as passageways between software systems that facilitate data exchanges; in simpler terms, they allow systems to talk to each other. Layering APIs on top of legacy core systems allow them to interact with disparate third-party technology companies almost instantly, among other capabilities.

Finzly, a Charlotte, North Carolina-based alternative core provider, advocates that banks not break their core contracts. The company’s Director of Marketing Suja Ramakrishnan says, “The core has been designed for certain functions. Let’s allow it to do what it is made to do and build a new innovation layer on top of it to let [the bank] do what it wants to do.”

Finzly integrates with a bank’s existing core via API calls. It’s hosted on Amazon Web Services, so no on-site installation is required. Once integration is complete, a bank can access Finzly’s products, as well as ancillary technologies that handle payments, account opening, foreign exchange and commercial business needs. “Alternative cores are breeding grounds for innovation,” Ramakrishnan adds.

U.S. legacy cores aren’t standing on the sidelines, watching foreign fintechs provide the technology their bank clients are asking for.

To retain their customers and poach new ones, some of the leading providers — Jack Henry & Associates, FIS and Fiserv — have all invested in API and similar functional technologies to be included in their technology stacks. Jack Henry’s jXchange, FIS’s Code Connect and Fiserv’s Communicator Advantage are the providers’ way of offering real-time communication capabilities with selected third parties not included in their core contract. 

But these API marketplaces come with a catch.

Tom Grottke, managing director at Crowe LLP, notes that banks can’t self-select the third parties they want to work with and go to market the next day. The providers are the ones to vet, certify and onboard the services they want to offer to their bank clients. “They [legacy core providers] are more open than they have been, they’ve added more functionality … but it’s not an open architectured marketplace,” he explains.

While banks are still wondering how they can add more digital features and services, Grottke says banks have realized that they won’t have to change the core to find those answers. 

There may be many advantages to replacing legacy cores, but it appears that many banks are content in using APIs as a Band-Aid to temporarily fix a longstanding problem. And with core conversion costly, replacing the core could be daunting for many banks. APIs buy a bank more time in figuring out their long-term core strategy.

2020’s Growth All-Stars

Written by

Low interest rates pressured net interest margins in 2020, but they also produced outsized growth for banks with a strong focus on mortgage lending.

“From a nominal — that is, not inflation-adjusted perspective — [2020] was the biggest year in the history of the [mortgage] industry, and it was driven heavily by the fact that mortgage rates fell to 2.5%” for customers with good credit history, says Douglas Duncan, senior vice president and chief economist at Fannie Mae. Single-family mortgage originations totaled $4.54 trillion, he says. Almost two-thirds were mortgage refinancing loans; the remaining loans were used for purchases. His tally represents an estimate — the U.S. government doesn’t calculate total mortgage loan volume.

But Duncan’s estimation is reflected in the countless press releases I’ve read from banks boasting record mortgage volume — and revenues — over the past few months. And mortgages are a major factor that fueled 2020 growth for the fastest-growing banks.

Using data from S&P Global Market Intelligence, Bank Director analyzed year-over-year growth in pre-provision net revenue (PPNR) at public and private banks above $1 billion in assets to identify the banks that have grown most quickly during the pandemic. We also included return on average assets, calculated as a three-year average for 2018, 2019 and 2020, to reward consistent profitability in addition to growth. The analysis ranked both factors, and the numeric ranks were then averaged to create a final score. The banks with the highest growth and profitability had the lowest final scores, meaning they ranked among the best in the country.

Among the best was eighth-ranked $2.4 billion Leader Bank. President Jay Tuli credits low interest rates with driving outsized growth at the Arlington, Massachusetts-based bank. Its sizable mortgage operation helped it to take advantage of demand in its market, roughly doubling mortgage volume in 2020 compared to the previous year, says Tuli.

“With rates coming down during Covid, there was a big surge in mortgage demand for refinances,” explains Tuli. Most of those mortgage loans were sold on the secondary market. “That produced a substantial increase in profitability.”

Mortgage lending also significantly lifted revenues at Kansas City, Missouri-based NBKC Bank, according to its chief financial officer, Eric Garretson.

The $1.2 billion bank topped our ranking, and it’s one of the two banks in this analysis that have become specialists of sorts in banking-as-a-service (BaaS). The other is Celtic Bank Corp., which is also a Small Business Administration lender that funded more than 99,000 Paycheck Protection Program loans.

NBKC’s BaaS program grew in 2020, says Garretson, though “this was dwarfed by the increase in revenue from mortgage lending.” Right now, NBKC focuses on deposit accounts, allowing partner fintechs to offer these accounts under their own brand, issue debit cards and deliver similar banking services. Lending products are being considered but aren’t currently offered, says Garretson.

As the financial technology space continues to grow, the opportunities should increase for banks seeking to partner with fintech companies, says Alex Johnson, director of fintech research at Cornerstone Advisors. Banks like NBKC and Celtic Bank Corp. have developed the expertise and skills needed to partner with these companies. They also have a technology infrastructure that’s fintech friendly, he explains, allowing for easy integration via standard, defined application programming interfaces (APIs) and a microservices architecture that’s more modular and decentralized. Put simply — a good BaaS bank will have the same tech capabilities as its fintech client.

“There’s a very clear model for how to do this, and there’s growing demand,” says Johnson. “One thing that tends to characterize banks that do well in the banking-as-a-service space are the ones that build a specialization in a particular area.” These banks have a track record for building these products, along with the requisite processes and contracts.

“When a company comes to them, it’s as easy [a process] as it could possibly be,” says Johnson. “The more of that work they do, the more that ripples back through the fintech ecosystem. So, when new fintech companies are founded, [and venture capitalists] are advising them on where to go — they tend to point to the banking-as-a-service partners that will work well.”

Top 10 Fastest-Growing Banks

Bank Name/Headquarters Total Assets (millions) ROAA
3-year avg.		 PPNR growth YoY Score
NBKC Bank
Kansas City, MO		 $1,207.5 7.93% 67.52% 14.67
Plains Commerce Bank
Hoven, SD		 $1,129.9 3.97% 86.75% 15.33
The Federal Savings Bank
Chicago, IL		 $1,076.2 7.66% 60.37% 19.67
Northpointe Bank
Grand Rapids, MI		 $3,685.5 2.58% 73.24% 25.00
Celtic Bank Corp.
Salt Lake City, UT		 $4,704.8 4.22% 55.87% 28.00
Union Savings Bank
Cincinnati, OH		 $3,586.3 2.75% 56.76% 29.67
North American Savings Bank, F.S.B.
Kansas City, MO		 $2,470.9 2.71% 58.57% 30.67
Leader Bank, N.A. $2,419.6 2.46% 61.63% 32.67
Waterstone Financial
Wauwatosa, WI		 $2,198.0 2.41% 59.23% 38.00
BNC National Bank
Glendale, AZ		 $1,225.7 2.13% 71.44% 39.33

Source: S&P Global Market Intelligence. Total assets reflect first quarter 2021 data. Average three-year return on average assets reflects year-end data for 2018, 2019 and 2020 for the largest reporting entity. Year-over-year pre-provision net revenue (PPNR) growth reflects year-end data for 2019 and 2020. Bank Director’s analysis of the fastest-growing banks ranked PPNR growth and average ROAA at banks above $1 billion in assets; scoring reflects an average of these ranks.

Marketing Campaigns Go High Tech

Written by

For years, community banks had to sit on the sidelines while the biggest banks rolled out sophisticated marketing and revenue-generating programs using artificial intelligence.

That’s no longer the case. There are now plenty of financial technology companies offering turnkey platforms tailored for community banks who can’t afford to hire a team of data analysts or software programmers.

“It’s amazing how far the industry has come in just five years in terms of products, regulatory structure and what banking means to customers,” says Kevin Tweddle, senior executive vice president for the Independent Community Bankers of America. Banks and regulators have gotten quite comfortable doing business with fintechs, choosing from a grocery cart full of options, he says.

One of the best examples of this is Huntsville, Alabama-based DeepTarget, which topped the operations category in Bank Director’s 2021 Best of FinXTech Awards. The category rewards solutions that boost efficiencies and growth.

The finalists and winners recognized in the annual awards are put through their paces in a rigorous process that examines the results generated by the growing technology provider space. For more on the methodology, click here.

DeepTarget’s 3D StoryTeller product delivers customized marketing content using 3D graphics that can be produced by a small bank or credit union without an in-house graphic design staff. Marketing messages resemble the video-rich stories on Instagram, Facebook and Snapchat, allowing the smallest financial institutions to compete with the biggest companies’ marketing campaigns.

The Ohio Valley Bank Co., the $1 billion bank unit of Ohio Valley Banc Corp. in Gallipolis, Ohio, has been using DeepTarget’s 3D StoryTeller software since October 2020, says Bryna Butler, senior vice president of corporate communications.

The bank used 3D StoryTeller to market an online portal where people could shop for cars and then apply for an auto loan through Ohio Valley Bank. From January to September of last year, that car-buying website generated just four loans. But after Ohio Valley Bank used DeepTarget’s 3D StoryTeller, the site saw a 1,289% increase in traffic. Using 3D StoryTeller translated into loans, too. Ohio Valley Bank generated 72 loans through the Auto Loan Center from October to December of 2020. Butler believes the response would have been even higher if the bank hadn’t been undercut by competitors with lower rates.

3D StoryTeller is a recent addition to DeepTarget’s line up; Ohio Valley Bank has been working with the company for about a decade. DeepTarget uses performance analytics among other options to recommend specific products and services that it believes will cater to each customer’s interests, similar to the way Facebook targets ads based on its knowledge of its users. “It’s not just scheduling ads,” Butler says. DeepTarget reports the return on investment for each campaign to the bank every month, including how many clicks translated into new account openings.

When the pandemic hit in March 2020 and the bank put its marketing plans on hold, the graphics program easily adjusted to feature messaging on how to use the bank’s digital banking or drive-thru customer service.

Although DeepTarget integrates with several cores, Butler says the software is also core-agnostic, in the sense that she can pull a CSV file on her customers and send that securely to DeepTarget.

Ohio Valley pays a small monthly fee for DeepTarget, but Butler says the software pays for itself every year. Other Best of FinXTech Awards finalists in the operations category include the marketing platform Fintel Connect, which tracks results and connects ad campaigns to social media influencers, and Derivative Path, a cloud-based solution that helps community banks manage derivative programs and foreign exchange transactions.

How Community Banks Compete on Digital Account Openings

Written by

In 2019, over half of all checking accounts were opened via digital channels. In 2020, this number rose to two-thirds.

In 2019, megabanks and digital banks were responsible for 55% all checking applications. In the first three months of 2020, this figure reached 63% — and climbed to 69% in the next three months.

Meanwhile, community banks and credit unions accounted for 15% of applications in 2019, and even fewer than that in the six months of 2020. What’s happening here?

It’s a trend: More accounts are being opened online. But digital account openings are only one piece of a steady shift in the financial services industry, one where consumers do more over online and mobile channels. Megabanks and digital banks are riding this wave, using powerful online offerings to draw consumers away from smaller institutions.

Moneycenter banks have strong digital operations that allow them to expand into communities where they may not have a single branch. Digital offerings have also opened the door for new players like online-only challenger banks, big tech companies and fintechs that are successfully luring in younger customers with payments, investing and even cryptocurrency services. Make no mistake: if community banks aren’t already in direct competition with these digital players now, it’s only a matter of time before they are.

Who Are The New Players?

In the past, community banks’ primary competitors were primarily each another or a nearby regional bank. Today, technology is redefining what it means to be a financial institution, and thereby reshaping the competitive landscape.

Big tech heavyweights like Facebook, Alphabet’s Google, Apple, and Amazon.com have become increasingly involved in financial services in recent years. Their efforts are growing in scope: Google, for example, launching Google Plex, which includes a checking account. Most likely, these firms believe that over time, their expertise in the areas of data and software development will yield a natural advantage over incumbent financial institutions.

Online-only startup banks (also known as challenger banks or neobanks) like Chime and Varo Money are also proving to be a legitimate concern. While Varo’s strategy included obtaining a full-fledged banking charter, which it received in July 2020, Chime relies on partner banks to manage their deposits. And just because they’re startups, doesn’t mean they’re small; Chime boasted 12 million users as of the end of 2020 — 4.3 million of whom identified it as their primary bank.

How Community Banks Compete

As the marketplace evolves, so do consumer expectations. With Amazon and other on-demand services at their fingertips, consumers have become accustomed to digital experiences that are fast, seamless, and personalized.

To compete with megabanks, tech companies and challenger banks for digitally-savvy customers, it’s essential that community banks consider the following strategies:

Invest in speed and reliability
Digital banking solutions need to be fast and reliable to satisfy the high standards that consumers have come to expect. This means efficient processes, minimal to no downtime and speedy customer service. Technology that integrates with your core in real time is key to accelerating customer onboarding and boosting overall user experience.

Play to key strengths
Community banks should lean into the areas where they shine by catering to customers’ personalized needs. Banks should also position their products according to market demand and digital best practices, and configure them for strong customer experience and institutional outcomes.

Seek out the right technology partners
The difference between a good and bad technology partnership is significant; banks often end up disappointed with the performance of a digital solution. To avoid this, it’s important to extensively reference-check technology providers and inquire about the actual delivered (and not theoretical) return on investment of a solution.

Building a Digital Transformation Strategy

As digital banking becomes the norm, it has prompted a massive shift in the competitive landscape. Yet with the daunting task of digital transformation ahead of them, what’s the best place for community banks to start?

One impactful area to focus on is digital account opening. In fact, 42% of banks and 35% of credit unions say they are very interested in fintech partnerships that prioritize digital account opening solutions. Partnering with an account opening provider can help small and mid-size financial institutions position themselves favorably as consumers continue to adopt digital banking.