Helping Community Banks Turn On The Innovation Switch

Innovation has always been important for community banks, but the driving force of digitization over the last decade has greatly sped up the pace, said Kevin Tweddle, chief innovation officer for the Independent Community Bankers of America (ICBA).

That push, he noted, hasn’t come from within the financial services industry proper, but primarily from the so-called “GAFA group” of Google, Amazon, Facebook and Apple — and the many ways they’ve made doing business simpler and smoother for consumers.

“Every industry that has a digital channel has had to change how they do business and improve how they transact with their customers. Community banking is no exception. While it’s a relationship business,” Tweddle said, “the evolution will lead to a high-tech, high-touch style that will become the sweet spot for community banking.”

Plug-and-play solutions are most helpful to community banks right now, Tweddle said. This is why ICBA partnered last fall with The Venture Center in Little Rock, Ark., to launch its ThinkTECH Accelerator, a community bank-focused program designed to give community banks a direct path to engage and partner with early-stage FinTech companies that focus exclusively on community bank product development.

Leveling the Playing Field

ICBA chose to back an accelerator program to speed up time to market, Tweddle said. When ICBA really looked at the options out there for partnering with FinTech companies, it became apparent that the accelerator was the best way to help early-stage firms hone and create targeted, innovative solutions for community banks at a faster pace.

“We are only in year one, but we have found that this strategy allows us to have a direct influence on identifying problems and holes and then working with these early FinTechs to develop solutions quickly,” he said.

Those myriad solutions span across different financial services applications. Payments and lending, Tweddle noted, are particularly popular in terms of where investment dollars are flowing and where the challenges lie. Real-time payments are coming and there is an increasing push for them, which means there is a lot of infrastructure that needs to be built to enable payments to flow both quickly and securely.

Community banks are also interested in lending process improvements and shortening the loan origination time, he said. With technology improvements, underwriting steps that used to take 30 to 60 days can now be performed in minutes.

Tweddle also noted that financial literacy is gaining steam. “I think a lot of consumers want to be guided in the financial process and use technology to help automate that process to make it simpler and make those choices for you,” he said.

Solutions using artificial intelligence (AI) and machine learning are getting better at predicting consumer habits, he said, and making suggestions or offering points of automation to make the consumer’s financial life clearer, cleaner and more manageable and efficient.

What FinTechs offer banks — assuming solutions can be spun up quickly and easily integrated — is the chance to be simpler, faster, cheaper and more secure.

In working with the 10 firms in the new accelerator program, ICBA is helping them build their value proposition around those four pillars and market their value propositions to potential banking partners, which can be a step some early-stage startups struggle with.

“What we hear a lot is that these FinTech companies are exceptionally good at developing, but struggle when they try to sell and market,” he said. “We’re spending a lot more time on the mentorship in this area.”

Innovating for Community Banks

Community banks are unique, he said, and their products, services and needs reflect that.

A big part of building an accelerator program for community banks was identifying those unique needs today and trying to predict what they may be in the future — and then connecting them with the right partner, he explained.

Most of that work, Tweddle said, will come down to data and analytics — and community banks finding ways to tap into streams of data to improve and update processes across the board.

Finding ways to make those connections, and to really tie data to not just one thing, but to the entire customer experience, is the next step in community bank evolution, he said. It is ICBA’s hope that through its accelerator program this year and in years to come, it will be able to help connect community banks with the right partners to make those evolutionary leaps.

“On the whole we are very optimistic,” he said. “I think we are going to see a lot of things over the next three to five years on the consumer side that will carry forward the direct connection between the customer and their community banking partners. It’s all about the high-tech, high-touch future that is community banking.”