Fintech Companies vs. Banks
Money20/20 brings together fintech and financial services experts to discuss the future of banking and technology-fueled disruptions, promising to give attendees the “clearest and most distinctive focus on what’s next.” The focus of this event is on being innovative and forward-looking—concepts that are embraced by many fintech companies, but mostly avoided by many community banks. Having just wrapped up my first trip to Money20/20, I am confident in my prediction that most community banks will be happy sitting out the fintech revolution—and that many fintechs will be content with their absence.
For years, fintech companies and community banks have purposely avoided each other. It’s a mutual sentiment—fintech is compelling, it’s hip, it’s now. Community banking is not as compelling, it’s not hip, and it’s an institution. This avoidance is born out of community banks’ fears of the technological sophistication of fintechs, and fintechs’ wariness of these banks due to their lack of critical mass or newsworthy appeal. Fintechs want splash and Tier 1 partners to make headlines for Series B funding. Community banks want to fall asleep right after the 11 p.m. news. Or so the (mistaken) stereotype goes.
These two groups avoiding each other is a misguided approach, and a collaboration between community banks and fintechs can be mutually beneficial. Although the differences between community banks and fintechs are stark, the fact remains that community banks need this tech, and fintechs are missing out on connecting their wares with banks who actually need their help and are willing to pay for it.
Bank and FinTech Partnerships
Fintechs should begin to target community banks as potential clients—especially since community banks are engaged in friendly, trench-style warfare with each other and competing for the same revenue, customers, loans, and talent. If a fintech company can usher Community Bank A into the new age of technology, that bank will be differentiated from its competitors. Community Bank B might witness this change, move quickly to catch up, and might purchase the same product to stay relevant. Not to mention, Community Banks C and D from down the block won’t want to get left behind.
Although these deals with smaller community banks might not accumulate substantial press coverage, are the deals really just for press? Or is it about revenue? As I see it, four signed contract beats one limited-use trial arrangement and a quickly forgotten headline any day.
The Future of FinTech and Banking
Needless to say, during my time at Money20/20, I saw some elegant solutions being offered by fintechs that solve many basic problems that community banks face. However, the perceived active avoidance between fintechs as sellers and community banks as buyers means the winners of the bank/tech industry are going to be limited and decided by only a few institutions and large industry players.
The moral of the story is community banks need to get out, see the tech, and participate in the revolution, and fintechs need to encourage their participation by actively marketing and selling to them. Otherwise, the ample opportunities of this partnership will be missed.