Pub. 12 2021 Issue 3

wvbankers.org 12 West Virginia Banker F inancial technology, or fintech, refers to the broad set of financial innovations that apply new technologies to a financial service or product. Although potential competition from fintech companies initially raised concerns for the banking industry, banks quickly recognized and adapted to the changing market as consumer and regulatory demand for better technology increased. Today, banks have implemented fintech solutions for both back-end processes (monitoring of account activity) and consumer-facing products (applications to apply for loans and pay bills online). Many community banks now partner with fintech companies, often through their core processing service providers, to provide modern platforms and services to their customers, obtain data about their customers to offer individualized products and services, and increase security. The COVID-19 pandemic also forced banks and customers to innovate, often changing how banking transactions were conducted. Banks rushed to provide solutions to open accounts and close loans remotely. These critical fintech solutions heightened banks’ awareness of the need to analyze their fintech strategy, including the processes and products that need to be changed and the best model to pursue that change. Community banks should consider the following two questions when reviewing their fintech strategy: (1) what are the bank’s goals for using fintech, and (2) what is the best model to pursue those goals? There are various options available to banks looking to incorporate fintech more fully in their business. These options include: • Develop Products In-House: develop fintech products and services by employees; • Partnerships/Collaboration: enter into an arrangement with one or more fintech companies to provide new products or platforms; • Investment: invest in a fintech company; and • Acquisition: acquire a fintech company or an established product. The most challenging strategy is to recruit the talent to develop new processes and services in-house. This model takes more time and funding than the other models and the talent may not be available. However, if this model is successful, the bank will attract new customers, obtain additional revenue, and sell or lease the technology to other financial institutions. The model being pursued by most community banks is the partnership/collaboration model where banks enter into third- party arrangements with fintech companies to provide new products and services to the bank’s customers. Community banks have certain advantages that are attractive to fintech companies, including a large customer base, access to the settlement system, regulatory compliance expertise, and funding. By leveraging these advantages and partnering or collaborating with a fintech company, community banks can provide safe and secure financial transactions for a wide range of products and services, often with high transaction volumes and low operating costs. By adopting this model, banks can provide fintech solutions and individualized products and services for their customers more quickly. The last model is to invest in a fintech company or purchase an already established fintech product. This model elevates the How Will Your Bank Leverage Fintech? By Amy J. Tawney and Sandra M. Murphy, Bowles Rice LLP