In today’s world, convenience is king. Consumer expectations are higher than ever, and many industries are scrambling to catch up. This trend has been emerging slowly but surely into the banking industry as well, as regulations catch up with rapidly changing technology and consumer habits. In many cases, fintechs are behind this migration to convenience in the banking industry. Fintech, a term that refers to the integration of technology into banking and financial services and the companies that provide these services, is exploding with popularity at a nearly untenable rate. CB Insights, a market intelligence platform, found in its 2021 State of Fintech report that global fintech funding reached a record $132 billion in 2021, more than double the 2020 figure. “The fourth quarter of 2021 alone saw $35 billion in funding, which is just below the all-time quarterly record,” the report noted. “Every major fintech category saw record funding in 2021, signaling that the fintech boom is being driven by broad interest in the space.” A 2021 report by the American Bankers Association in partnership with Accenture suggests that traditional banking institutions that embrace innovation and new technology are in an advantageous position in today’s business environment in comparison to less tech-savvy institutions. Per the report: “Banking has come to a tipping point where great digital customer experiences are necessary but insufficient to win. With a new wave of digital-only players fragmenting and rebuilding the banking value chain with innovative propositions, it is not enough for incumbents to be the best digital versions of themselves. To keep pace, they must drive product and proposition innovation and embrace new roles in the value chain.” In a recent interview, Charles Potts, executive vice president and chief innovation officer of the Independent Community Bankers of America, estimated that about 35,000 fintechs are currently in existence. Some, he said, are “solutions looking for a problem.” Potts explained that when done well, however, fintechs can be an answer to growing consumer expectations in the banking and finance industry. Banking as a Platform (BaaP) is perhaps the most common way consumers currently interact with fintechs. The BaaP model describes a fintech (or any nonfinancial company) providing services to financial institutions. These services can be remarkably simple in concept, such as the function of a bank’s mobile app, or the ability to originate a loan online. BaaP is often as fundamental as using technology to streamline or improve upon a bank’s current offerings. Conversely, fintechs are often limited in the financial services they can offer without banking charters. This is where the emerging Banking as a Service (BaaS) model comes into play. A growing number of banks, such as Fishers-based First Internet Bank of Indiana, are actively seeking partnerships with fintechs. This kind of partnership allows fintechs to expand their offerings to provide products and services that are generally available only through banks, such as loans or credit cards. Banks, on the other hand, benefit by opening new accounts and gaining access to a new, niche customer base. Fintechs can also allow banks to be more competitive. A study published in February by the Federal Deposit Insurance Corp. found that tech-savvy banks outcompeted their more traditional competitors on certain financial products. In examining Paycheck Protection Program loan volumes, the study found that banks in the top 15% for tech adoption made more loans than similarly sized competitors by 9 percentage points, and more frequently gained customers outside their usual markets. Emily Brooks Member Engagement Specialist Indiana Bankers Association ebrooks@indiana.bank n the ban perh d finan Hoosier Banker 13
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