After 18 years as a community banker, Matthew Smith could not be more excited about his new role. For almost two decades, he has helped banks in Oklahoma and Texas acquire and implement strategic technology. In his new position as Director of Innovation Initiatives for the Independent Bankers Association of Texas (IBAT), he’ll be the go-to resource for more than 2,000 banks and branches in 700 Texas communities.
He started 90 days ago and hopes to be an impactful educational resource for bankers when it comes to fintech partnerships and technological acquisitions — something like Texas community bankers’ tech concierge. “Often, banks don’t know what they don’t know,” Smith says. “IBAT is that trusted resource that they can reach out to and say, ‘Hey, help me out. Help me understand. I’m hearing these buzzwords, what do they mean? How do I move forward?’”
unifimoney gave Smith a call to understand what hurdles bankers need to clear to offer innovative accounts and services to their customers. They wanted to know: how can fintech partnerships help community banks and credit unions survive and thrive in 2022 and beyond?
What does IBAT hiring a Director of Innovation Initiatives signal about the future of community banking?
It’s really big. Community banks are wanting to get to a place where they better understand fintech. Today, there’s a very broad spectrum in the space: you’ve got the traditional community bank that doesn’t know where to start and doesn’t know what questions to ask,, all the way to banks that are really aggressive and are essentially becoming BaaS banks. The fact that IBAT wants to come in and support community banks with education and with guidance in connecting the fintechs to the community banks is a really big step forward.
What is the biggest hurdle that keeps banks from going full speed ahead into innovation?
Education. Often, banks don’t know what they don’t know. For example, they’re hearing a lot of buzzwords like APIs or middleware. Or maybe somebody comes in and says, ‘Hey, I’m gonna sell you everything and you can go to market in eight weeks.’ But these banks are in a contract with their core, and they think they’re locked in. Often, they don’t know where to start or who to go ask those questions to. IBAT is that trusted resource that they can reach out to and say, ‘Hey, help me out. Help me understand. I’m hearing these buzzwords, what do they mean? How do I move forward?’ So, that’s really where we’re at today.
What is lost for both consumers and institutions when banks resist technological and strategic innovation?
For the banks, they risk being viewed as being left behind if they are not able to provide everything that the big banks can offer. There is this perception that the big banks are extremely innovative, when in all actuality they’re often slowed to a crawl by their bureaucracy. For the community bank, the fear is how their customer is going to view them. But customers need to understand that Chase and Wells and those guys aren’t being as innovative as you’d expect. Many community banks are trying to get there, and they are that little destroyer ship versus the massive battleship. The destroyer is going to be able to turn on a dime versus a battleship, where it’s going to take them forever to turn around to decide what they’re going to do.
I’ve heard that in a lot of these conversations: community banks and credit unions could actually leverage fintech partnerships that could make them nimble competitors to the Big Four on the innovation front.
I’ve talked to three banks — one bank out of Sweetwater, Texas, and another bank out of the valley — and they’re not big, but they get it. They know they need to diversify, and they’re out there finding ways to make that happen, whether it’s through an affinity bank or finding avenues to get outside their market. To me, what’s so exciting about that is I didn’t think these small community banks were getting out and asking these questions, and they are. They want to be out there, they want to be part of the customer base, and they want to grow. They’re excited about the technology and they’re finding very unique ways to make that happen.
How can fintech partnerships help community banks and credit unions level up their offerings?
Some of it is to come in and really help educate the banks, so they better understand what space they can play in. I’ll give you a really good example. I was talking to a banker out of Paris, Texas, and he’s got this $20 million customer that wants to switch to his bank. The customer is tired of the big bank he’s been banking at. The customer comes in and they need to process a lot of wire transfers. The bank reached out to their core and found it will take 20 months to implement the software needed to support this potential customer. This is where a fintech can come in and help. But fintechs need to truly understand that this bank might not understand what integration is and they might not understand what manual processes are going to happen. Sure, the fintech can get it implemented, and it’ll be faster, and it’s gonna be more seamless, but they need to help the banker understand what they’re gaining and what they’re losing by going with that solution. It’s really this unique partnership role that fintechs can come into the space and play. It’s no longer a vendor-bank relationship; fintechs can instead become strategic partners and say, ‘Hey, look, I know you’ve got this $20 million customer. I can get you implemented in 10-to-12 weeks. Let’s walk through that journey together. Let me give you the pros. Let me give you the cons. And when it comes to those cons, let’s see if we can mitigate those down towards an outcome that you find acceptable and where the customer wins.’
So, for that $20 million customer, the community bank experience paired with a fintech partner becomes the best of both worlds.
Think about it: you’ve got this $20 million customer that wants to go with the community banker because he can have a relationship that last decades. The customer is not getting that at the big guys; they don’t even know who the customer is. To the small community bank, this is huge. This is a great opportunity. And so, if the fintech can come in and also help out that partnership, now you’ve got a win-win-win, right? The customer is winning because they’ve got a hands-on relationship with the community bank. The community bank’s winning, because all of a sudden, now they’ve landed this big customer that they wouldn’t have otherwise. And the fintech can come along and help them get there and land a valuable partner.