The fundamental business model for banks and credit unions hasn’t changed for decades. If you’re a banker, that in and of itself should worry you.
If we think of a financial institution or payment provider as a potential platform for obtaining, aggregating and managing potentially millions of customer relationships, how might that work?
In an era where everything from taxicabs to department stores to landline phone service has been transformed by technology-fueled challengers, how much longer can a traditional approach to banking based on interest rate spreads and fee income survive?
Financial services industry analysts like Ron Shevlin have argued that the demise of banking has been greatly exaggerated — a relief to many. But do financial institutions have to wait for their last branch to close before they start to remodel themselves to take on the challenges of the years and decades ahead?
As Ron noted in a recent article, “Today’s banks only match consumers to their own products or services.”
Compare this to the strategy pursued by one of the largest ground transportation companies that doesn’t happen to own a single vehicle, Uber. Or, Airbnb, a globally dominant player in providing overnight lodging that hasn’t had to make an investment in either real estate or hotel staff. Not to mention, Amazon, which provides a platform for over 2 million sellers, who ship more than 2 billion items per year and generate 40 percent of Amazon’s total units sold.
One path forward may depend on a strategy of crafting partnerships with fintech companies. Lisa Gold Schier, senior vice president of strategic alliances at the American Bankers Association and a leader in the industry helping financial institutions extend their products and capabilities through partnering, is excited about the prospect in the industry.
But, like many in the industry, she also notes that while many fintech companies have good ideas, they don't yet understand the complexity of integrating into a community bank’s core banking system. Although many in the industry consider this an easy integration, it’s never as simple as it seems.
While leading financial organizations recognize that changes are coming to banking and payments, it can be daunting to select fintech partners to work with. John Schulte, senior vice president and CIO at Mercantile Bank of Michigan, notes that in order to identify the right vendors and partners for your business needs, you have to monitor and engage with the fintech community, keep track of new and emerging players, and always follow the chatter. As in most industries, networking, research and due diligence will play a key role in driving successful partnerships in the years to come.