Pub. 9 2020 Issue 6

Pub. 9 2020 Issue 6 23 Enabling Distribution of Seller Products Mobile payment apps are the most visible examples of third-party platforms that community banks can use. Examples include Apple Pay, Google Pay and PayPal. These platforms provide a new distribution channel for bank-issued credit and debit cards, making them available on a mobile device for in-app, e-commerce and physical point-of-sale purchases. They also expand the utility of card products with app-provided services like enhanced transaction security and electronic receipts. Community banks and credit unions looking to maximize interchange revenue need to ensure their cards can be used in these apps as e-commerce and in-app payment volume continues to grow. Typically, a financial institution’s card processor can do all of the work required to make the financial institution’s card available in third-party mobile payment apps. While current payment apps do not necessarily enable users to create new bank relationships, future apps may see the facilitation of card application and account opening processes within the app user experience. 3 Third-party platforms that support loan products are relatively mature and available. Examples include LendingTree, Credible, or even car dealer management systems that tie in bank financing for auto loans. These platforms allow consumers to create new relationships and open loans. Typically, only loan products that rely on standardized underwriting rules and readily available consumer data fit these third-party platforms. More complex small business loans, which are the sweet spot for community banks, are not readily supported on the prevalent loan distribution platforms in the market today. But they will be supported eventually as technology evolves to enable intelligent, automated credit decisioning and application of underwriting rules. Deposit Partners and Platforms Third-party platforms that support deposit products are less mature than payment and loan platforms but may represent the biggest future opportunity for community banks. Bankrate.com and NerdWallet are examples of current deposit product-centric platforms. They build awareness for deposit products by allowing consumers to search across banks for the most attractive offerings. But they don’t allow consumers to open new accounts or otherwise access bank services. In other words, they cover the marketing aspect, but not the distribution aspect of a modern digital distribution platform. This gap can be addressed with the application of bank-owned digital account opening solutions. Sourcing low-cost deposits through third-party platforms could become one of the most effective enablers of a community bank’s growth strategy. Acquiring homegrown deposits through branches is comfortable but expensive and constrained by geography. Buying deposits from placement firms is quick, but costly. Tying together third-party distribution platforms with modern digital deposit account opening solutions creates a new, attractive path to deposit growth for community banks. The promise is that community bankers can focus on growing business loan portfolios in local markets and let technology drive deposit growth. And, community bankers can focus on growing business with newly acquired deposit accountholders via personal relationships and exceptional customer service. This will become mainstream as banks adopt the necessary enabling technology and explore new partnership models, especially with FinTechs. Attaching Platform-Specific Value-Add Services to Seller Products Different types of deposit product- centric platforms will emerge. Some will be national in scope and geared toward the general consumer (think FinTech looking to offer new capabilities that require an underlying deposit account). Some will be national in scope but geared toward a specific consumer segment (think wedding planning or college saving solutions). Some will be local in scope and geared toward small businesses (think practice management software or POS systems). The key is to identify use cases where there is an intersection between activity on a platform and the need for a new deposit product. Requirements of a third-party distribution In all of the cases described above, community bank and credit union participation in third-party distribution platforms require the following: • An API-based digital account opening solution; APIs are necessary to allow account opening processes to fit into the platform provider’s user experience. The solution needs to flexible enough to accommodate financial institution- specific compliance-related workflows. • System architecture that ensures new customers and accounts created via third-party platforms are propagated to all relevant internal bank systems, including the core, the servicing platform (digital banking platform), the customer relationship management (CRM) system, and any fraud monitoring systems; this can be simplified by ensuring the digital account opening solution interacts properly with the financial institution’s existing core. continued on page 24