Fintech Partnerships Clear The Way For Banks Without Branches

A successful digital bank has more to offer than just online banking.

According to Jeff Nowicki, the Prime Vice President of Banking at the Treasury, Emily Reisig, the Senior Vice President of Innovation and Development at Emprise Bank, and Aditi Shekar, the CEO of Zeta, the branchless approach could give both traditional banks and FinTechs new opportunities.

But in order to get there, providers need to know the changing needs and wants of the tech-savvy, younger customers they want.

Studies show that most people like the features of digital banking and are happy to use digital banks and FinTechs. Less than 10% of people use them as their main account, though.

Shekar noted that — with a nod to the millennials out there that opt to interact with their financial services providers online — “our generation has evolved as a digitally native generation.” And as these consumers get older, they expect that every part of their lives, including banking, will be “upgraded” so that more of it can be done online.

As so much of life is shifted online, Shekar said, “community is not going to be about where you live — it’s going to be about who you like to talk to and who you like to spend your time with online.”

So, there is a lot of pressure on the banks to improve their digital services so that money can move easily. To do this, both financial institutions (FI) and FinTechs need to be aware of the real changes taking place in the households they want to serve better.

We’re no longer in what Shekar called “single payer mode,” which is when one person makes and spends all the money. She said that most millennial households have two incomes, and that younger consumers don’t earn, spend, or even share their money the same way as their parents did.

Reisig, who works at Emprise Bank, said, “There are pressures of technology and innovation. Our customers now expect to have technology experiences.”

Linking Banks and FinTechs

In the past, panellists said, banks might have been suspicious of FinTechs, and consumer FinTechs might have tried to build everything themselves or looked at banking charters as a key way to build the digital bank of the future.

But Reisig said there’s room for a partnership model where FinTechs can come up with new ideas, make great experiences, and solve problems that come up with the digital channels that are becoming popular in financial services. She said that banks like Emprise can be a helpful banking partner by using their knowledge and skills on a wide range of important banking products.

Nowicki said that the banks and FinTechs need a bit of glue to connect their different strengths. He added that providers like Treasury Prime can help connect the two sides of this digital banking equation. He said that the banks bring their strengths in risk management and regulatory compliance to the table, which is important as consumers and banks continue to build relationships that are only digital.

“It’s important for the banks that are entering into [the digital banking] space,” he said, “to keep control of certain aspects of the programmes and of the relationships.” Shekar said that FinTechs have an advantage because they don’t have to build deep integrations with each bank partner.

As she noted, “I am not a compliance expert — I’m a software builder, and I like the ability to stay in my lane while still leveraging the capabilities of a bank partner and Treasury Prime at the same time.”

Changes over time

The partnerships are important, the experts said, because the digital bank still has a long way to go in its development. Nowicki said that as providers add more services, we’ll see more specialisation in the years to come. Reisig said that all kinds of providers have the chance to build specific customer bases and keep wallet share.

And as the digital bank keeps getting better, it will have the chance to become people’s main bank.

“The uptick for making the digital bank the primary bank is in solving some edge cases,” for innovating interactions that have typically involved cashier’s checks and even access to cash. Shekar said that FinTech 1.0 had never been able to solve the problem of getting financial services to the “last mile.” But now that infrastructure and partnerships have improved, you can pay for big-ticket items like cars with apps instead of a cashier’s check.

Nowicki said that this makes embedded finance a huge opportunity for people and businesses who want to bank where they are, as well as for the banks and FinTechs that want to serve them. Reisig said that embedded finance is a lot more than just a chance for a neobank to sponsor something. Nowicki said that banks and FinTechs will try to reach customers with nontraditional products, like small business microloans, as application programming interfaces make it easier to get to data.

“It’s embedded banking in multiple places and digital experiences and throughout the customers’ daily lives,” she said, to which Nowicki observed about the rise of the digital bank: “It’s not necessarily reinventing the wheel, it’s reinventing the user experience.”