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Op Ed

The banking revolution: adapt or be left behind

October 24, 2019

Over the past 10 years, the landscape of the financial services industry has dramatically evolved. Technology and the rise of fintechs have called into question almost every traditional banking model, requiring banks to either adapt or be left behind.

In today’s digital age, some banks have been slow to innovate or to create a more efficient, positive consumer experience, while others have created a seismic shift of the industry and redesigned how consumers access financial services.

Recently, the bank-fintech partnership model has become a topic of debate. As Rodrigo Suarez of INV Fintech pointed out last week, banks must innovate or face certain demise. Strategic partnerships with technology by some institutions has many traditional banks reevaluating their own legacy business models.

Those who have successfully embraced the partnership model, or used resources to develop their own digital platforms, have reaped the benefits and are laying the foundation for the future of banking. The reward of this innovation is realized by the families who have access to safe and transparent credit; access to their funds when they need it most; and access to financial services products in real time.

Community banks have particularly benefited from embracing innovation, as they are now able to cast a larger footprint without the overhead cost of physical brick and mortar expansion. Fintech partnerships have provided a way for smaller institutions not only to survive, but to thrive and flourish in ways that were previously impossible. In order to prevent the continued historic closure rates of community banks, modernized solutions must be adopted.

Modernization is more than a simple upgrade offering a new face to traditional products. It entails fundamentally changing the way people access financial resources. Partnerships with fintechs are enhancing the types of products offered, the efficiency in which they are utilized and the ease in which they are accessed. For consumers, this translates to more competitive offers, lower costs, better quality of products and a convenience they have never experienced before, while providing the utmost consumer protection.

Partnerships are also paving the way for the future of responsible innovation. For example, fintechs can use existing data in new alternative ways to provide safer loans to a broader consumer base; faster payments that help consumers exit the cycle of debt; and online banking that is allowing consumers to access their accounts regardless of the presence of a physical branch. Recently, the CFPB released their final proposals for No Action Letters and Compliance Assistance Sandboxes for the industry, to promote and encourage innovation. Consumer safety and protection are at the heart of this innovative wave.

Partnerships enable fintechs to thrive at what they do best: innovate and simultaneously allow banks to provide the trusted expertise of an established regulated institution. This has led to an increased importance of working with trade associations, policy makers, regulators, legislatures and industry stakeholders to educate all parties on the benefit technology is having. Increased communication and dialogue among these core market participants will aide in removing barriers to innovation, while guaranteeing greater consumer protection. Technology does not impede a bank’s ability to innovate responsibly while maintaining its true roots.

There is proof that innovation does not need to be sacrificed for community bank values. Consumers not only want modernized, easy-to-use solutions, but relationships with their bank as well. They want the feeling of their community branch, without necessarily needing to physically stop into a location. Ultimately, to thrive in this continuously evolving ecosystem, institutions will need to provide top-tier modernized products coupled with personalized services based on relationships. Reinventing how people bank does not mean choosing innovation over values, or vice versa.

Phillip Goldfeder is senior vice president of public affairs at Cross River Bank, a New Jersey state chartered FDIC-insured bank that merges the established expertise of a bank with the product offering of a financial technology company.