WOLF & CO Insights How to Use Digital Transformation to Seize Opportunities

How to Use Digital Transformation to Seize Opportunities

There’s a staggering amount of money being invested in financial technology companies. While many fintech companies are dedicated to assisting financial institutions by optimizing the streamlined delivery of financial services, competition is rife. To remain competitive, financial institutions must be able to utilize newly developed technology to leverage their existing successful core competencies. Understanding data flow, areas of friction, restrictive contracts, and successful IT infrastructures is essential to remaining competitive.

It’s probably not news to anyone that contracts provided by the existing large core banking processor providers are restricting fintech innovation. These core banking platform providers have monetized controlling financial institution data, as opposed to enabling their clients to succeed. Additionally, legacy cores have also used restrictive contracts to prevent institutions from using the best new financial technology products, aiming to prevent other providers from getting a share of their fees. These inabilities make competing with large banks and new fintechs much harder than it should be. In the most recent Bank Director Technology survey, 52% of financial institutions were not effectively using their data, and 57% of institutions were unsure if they have the tools in place to effectively service millennials. New digital-first tools are being developed daily, and community financial institutions should have access to all available tools to address these issues.

Are these core banking platform relationships going to prevent you from succeeding? Not if you don’t let them. Community financial institutions have many core competencies that large banks and fintechs do not. Leaders of these community financial institutions should look to leverage both these new technologies and their data to ensure their strengths remain intact.

Existing community financial institutions’ strengths are focused on an organization’s size and location. While the usage of a branch has dramatically changed over the past 10, or even 2 years, there is still demand for a banking location close to a customer’s home. Even though customers now make fewer trips, it’s still beneficial for customers to be able to go to a branch when needed, whether it be to open a new account or conduct a large transaction. Tied to a bank’s physical footprint is its focus on community, such as sponsoring local events and making charitable donations to community organizations. Plus, many customers want a local option when making large transactions such as taking out a mortgage loan. By using data to understand a customer’s financial needs and leveraging technology to provide best-in-class products, community institutions can continue to enjoy the success they’ve had over the years.

Another interesting statistic from the 2021 Bank Director survey is that 49% of institutions viewed technology companies as vendors only. While this may certainly be a preference for an institution, it’s not a requirement. In fact, community institutions are often looked at as the most desirable fintech partner. They are a lot nimbler than a large institution, and an early stage fintech entrepreneur will have direct access to decision makers, something they don’t get with large banks. There is one other large reason community financial institutions are desirable fintech partners — they have customers. You’re already a leg up on the new fintech companies being introduced to the market as you have an existing client base. Continue to offer the best financial products to your customers and you’ll remain competitive.

Not all financial institutions need the same IT infrastructure to achieve their goals. Just as strategic planning is done institution by institution, determining the IT infrastructure that works for your organization should be done on an individual basis. In addition, not everyone is at the same starting point. An institution’s existing core processor contract will play a large part in where you are in your digital journey. Understanding data flow, the level of manual assistance required, and system and contract analysis will all be crucial in determining if your IT infrastructure is preventing your organization from achieving its goals.

Competition is increasing for community financial institutions — whether it comes from new fintech companies, large banks, or the community financial institution down the street able to offer superior digital products. It’s important to have an IT infrastructure that enables your organization to achieve its strategic goals. Ensuring that you are well-positioned technologically will be essential as your customer base expects superior digital offerings. Make sure you can emphasize the strengths that have enabled your success to this point.

For more information on Wolf’s Fintech services, check out this page on our website.