The Conference of State Bank Supervisors has announced its intent to file a lawsuit challenging the decision of the federal Office of the Comptroller of the Currency to let these companies pursue national banking charters.
While the impending lawsuit against the new OCC rules may tie up the process for a while, Jerry Silva, research director for IDC Financial Insights’ global retail banking practice, says it’s highly probable that small banks and credit unions will have to adjust.
Silva says small banks and credit unions should start by evaluating where the fintechs can successfully compete against them. In some cases, it might be with more efficient mobile and online banking apps, while in others it could be with speedier lending.
Whichever technology companies they’re working with, he says, execs at the smaller financial companies need to ask their vendors the following three questions:
How can you help my bank improve digital engagement?
Savings and loan companies, which focus on mortgages, car loans and student loans, need to find out how their established vendor can help them speed up the loan process without increasing risk. A fintech like RocketMortgage can approve a loan in under a day, while smaller banks may require several days to a week. Banks with a mix of deposit business and consumer loans also need to ask how their established vendor can improve mobile and online banking. Smaller banks should ask their tech vendors how they can start offering banking services through a voice assistant, such as Amazon’s Alexa or Google Home.
How are you engaging with fintechs to improve my banking products?
In some instances, the established vendors partner with the fintechs to deliver a more efficient lending system. The established vendors also partner with fintechs to offer more efficient mobile apps for banks that serve a mix of depositors and consumer loan applicants. In these situations, the fintech develops a discrete mobile banking and lending application, and the established tech company provides the customer support. Dual paths are emerging in which the established tech vendors will partner with the fintech or, in some instances, acquire them.
What are you doing to improve your internal development cycle?
Some of the established financial tech vendors have been around for 40 years or more, running core deposit and general ledger banking systems on old COBOL code. This means that any of the new applications from the fintechs that the established tech vendors bring on must be integrated with legacy banking systems. Ask your established vendor if it is moving to Open APIs so traditional banks and fintechs can complement one another.
In the end, Silva says, the fintechs compete because they offer a better way to engage customers. Everything the bank does must focus on ways to make digital services easy to use, faster and more cost-effective. While small banks should take the competitive threat from the fintechs seriously, Silva says the smaller players have time.
“I just don’t think this process will be so quick that small banks have to account for these changes in their 2019 budgets,” he says.