🔒While some banks see financial tech companies as threats, other lenders partner to adopt new digital services

The past year and a half has been busy for David Mitchell.

As Liberty Bank’s executive vice president and chief digital officer since July 2020, Mitchell has led efforts to not only navigate the bank through shifts in customer behavior during the pandemic, but more importantly to incorporate new technologies across nearly all aspects of the banking experience — from money movement and customer onboarding to small business invoicing and customer service — with the hopes it will drive the mutual lender’s growth and revenue amid a market landscape that has seen a steep decline in the number of banks over the past decade and skyrocketing growth among financial technology, or fintech, companies.

Mitchell himself knows both the banking and fintech worlds well. Before joining Liberty Bank last year, he was president of Glastonbury-based NYMBUS, a cloud software provider to the fintech industry.

“Since the Great Recession of 2008, the number of [traditional] financial institutions like banks and credit unions has dropped from 20,000 to around 8,000 now,” Mitchell said.

In contrast, there have been more than 35,000 fintech deals since 2010, worth more than $1 trillion, according to 2021 S&P Global Market Intelligence data.

As fintech companies like Mint, PayPal, Venmo and Apple Pay have gained traction, they have disrupted the traditional banking model and forced banks and credit unions to invest in or partner with innovative technologies that align with the convenience and simplicity consumers demand in an increasingly mobile device-fueled society.

That’s driven large financial institutions and private equity companies to invest billions in fintech. For the first three quarters of 2021 alone, fintech investment has increased to $91.5 billion in global funding, nearly doubling the total the sector attracted in all of 2020.

JPMorgan Chase, the biggest U.S. bank by assets, has acquired three fintech companies since last December.

Some banks, particularly large money-center institutions, view fintechs as a threat to their business, as online-only financial services companies have poached millions of customers in recent years.

But others, including smaller community lenders, view them as an opportunity and are partnering with fintechs to adopt new technology they otherwise wouldn’t be able to develop in-house.

For example, Liberty Bank has signed partnership deals with several new vendors, including Alkami, one of fastest-growing digital banking platforms with more than 10 million live users across the U.S.

“We wanted to find one combined platform that could support retail, small business, and cash management for digital/mobile banking,” Mitchell said.

Liberty, which has $7.3 billion in assets, has also inked a deal with Glastonbury-based Payrailz to be its new money movement partner, supporting account-to-account transfers, new account funding and loan services. It has also added new partners to support financial wellness and credit monitoring, as well as one to help small businesses to manage invoicing and payments, and another to provide digital customer service.

Meantime, the parent company of Stamford-based Patriot Bank, with $962.8 million in assets, announced earlier this month it was buying American Challenger Development Corp. to establish a new digital national bank headquartered in Connecticut.

For many banks, new partnerships with financial technology companies are a survival strategy, as fintech adoption by consumers has risen steadily in recent years — from 16% of global consumers using at least one fintech platform in 2016 to more than 60% in 2019, according to Ernst & Young survey data.

And COVID-19 only hastened the pace of fintech adoption, says Cynthia Merkle, president and CEO of Danbury-based Union Savings Bank.

“The pandemic accelerated the use of mobile and [customers] moving away from [bank] branches for transactions,” Merkle said.

Bigger tech budgets

Union Savings Bank’s stepped-up focus on fintech adoption pre-dates the pandemic, Merkle says.

For the past five years, the bank’s innovation center team — composed of cross-functional representatives from product management, IT, marketing, data and customer service — has been working collaboratively, including on new fintech partnerships.

In Aug. 2020, the bank launched a contactless debit card and in October of this year it announced a new early payday service that will give customers — with a Union Savings Bank checking and direct deposit account — access to their paycheck up to two days early.

“A lot of consumers are living paycheck to paycheck these days,” Merkle said. “And if we can help in a little way, we want to do that.”

By year’s end, Union Savings Bank, which has $2.96 billion in assets, will also launch a new financial insights service to help customers track how they spend their money and how they can better budget.

The important and evolving role financial technology will play in the future is reflected in Union Savings Bank’s technology budget, which Merkle says is increasing by 20% this year compared to the more typical 5% increase in recent years.

Merkle says Union Savings Bank’s brick-and-mortar locations, which have scaled back hours over the past year, have become less about transactions and more about offering consultation services for customers.

The ability to meet customers in-person still helps differentiate traditional banks and adds a layer of trust with customers, bankers say.

At the same time, partnering with banks versus competing with them can help fintechs leverage lenders’ existing customer relationships, according to Jorge Santiago, executive vice president of Milford Bank, who oversees the lender’s digital strategy.

“By working [with fintechs] we can improve our service to our customers and [our partner] is able to work with a trusted resource because our customers trust us to [select] good partners,” Santiago said.

Santiago said Milford Bank, which has $528.4 million in assets, conducts customer surveys and focus groups to learn about services they want.

Milford Bank’s newest partnership, launched in October, is with FutureFuel.io and offers personalized student debt management services, including loan consolidation and refinancing and programs to convert cash-back rewards and spare change into student debt payments.

“It’s hard for a community bank to have one specialist on hand who can help with student loan debt, but by partnering with [a fintech], we’re able to bring these services at a very [cost-effective] rate to our customers,” Santiago said.

Google/Amazon experience

It’s not just the innovation, speed and convenience of today’s fintechs that are changing the banking experience, it’s also the integrated nature of these digital tools, says Liberty Bank’s Mitchell.

“Unfortunately, financial services in the United States have [historically] been behind on technology, so the core systems that ran the banks were 30- to 40-year-old technologies within a closed system and new features or functions would release twice a year,” Mitchell said. “The newer technologies are part of ‘open banking’ so different systems [talk] to each other.”

That’s allowed banks like Liberty to better communicate a united financial picture for customers. He points as an example to the various apps consumers use for person-to-person transactions, to pay bills or check their credit score.

“We can now embed all these fintech vendors [behind the scenes] to give the [financial picture] in one spot,” Mitchell said.

And that is something the majority (60%) of fintech users say they want from a provider. They also want processes to be faster, according to the Ernst & Young survey.

Mitchell says Liberty’s new customer onboarding process, which used to take 15 minutes, can now be done in less than five minutes.

“You scan your license and the system populates the information and processes the ‘Know Your Customer’ information that is required by regulators,” Mitchell said. “The user experience [for banking] has to be like Google or Amazon because that’s what people want and are used to.”

With the global fintech market expected to grow annually at a nearly 14% rate to $190 billion by 2026, the only thing certain for the banking sector is more innovation.

“Traditional banks had been doing things [largely] the same way for 200 years,” Mitchell said. “But everything has changed.”