Data-Driven Banking: Issues Faced by Community Banks & Credit Unions With Service Providers
The problem with community banks and credit unions is that they are dependent on service providers and the service providers are not able to deliver what the community banks want especially around data needs”
Keeping pace with technology demands has always been a concern for small players in the financial industry. In today’s technology-driven banking environment, a community bank’s relationship with its core service provider should be a strategic partnership that supports its business objectives.
Community banks have growing concerns with providers over unfavorable, expensive contracts, and mediocre digital offerings, making it increasingly challenging to compete with larger banks, FinTech companies, and NewTech FAANG companies
Reasons behind dissatisfaction of smaller institutions with service providers:
Smaller institutions depend almost 80-90% on their technology service providers or other forms of service providers for several years now. Why aren’t they still not satisfied with what they’ve been offered?
- There are definitely gaps in creating software: Service Providers may still not have the solutions that these community banks and credit unions need because of which these credit unions & community banks do it themselves.
- Service Vendors typically invest in product development through mergers and acquisitions of fintech companies or R&D:
- Community banks are usually content with the basic services offered by service providers (risk management, security, etc.), but are interested in innovating through enhanced product offerings to achieve efficiency and scale.
- This will provide FinTech with new means of innovation and competition for community banks thus increasing opportunities for new partnerships between fintech companies and community banks (from mortgage and auto-origin automation to anti-money laundering). For many community banks, staying competitive requires both a responsive core service provider and the ability to improve efficiency and provide more revenue streams. One of the best ways for these community banking associations is to partner with the FinTech company, align with the service providers, and align with the service providers and work with community banks and credit unions.
If a replacement is considered, the option follows
1) Technology: If you have bandwidth and resources, set up and build your own process. There are various utilities available from all cloud providers such as AWS, DCP, Google, Overkill, but the important thing is that you need to adopt a no-code low-code environment. No additional data process management system is needed to enter a data-driven organization and add many data engineers.
2) FinTech Collaboration: Collaborating with FinTech is perhaps the best way of doing it. The ability of community banks to work with these companies may depend on the openness of the service provider to third-party providers and the scalability of the core platform. Therefore, community bank leadership details the service provider’s technical capabilities and contractual obligations, especially when considering terminating a relationship with a service provider or entering into a partnership with a fintech company.
Community banks and credit unions are in this Catch-22 situation. The service providers are providing the core services that the bank needs that cannot be eliminated. There is a need for community banks to demand from these core providers that they need some simple, smart, and efficient solutions. They need to use their data for knowing their customers, cross-selling to customers, and perhaps making compliance self-sufficient and that push needs to come from the community banks and credit unions to the service providers because these service providers are going slow but they are providing a lot of other valuable services that banks need to depend on, whether it’s the deposit systems, lending systems, payment systems, and others thus collaborating with FinTech companies is the best answer as of now to move ahead to be a data-driven organization.
Click the link below to know about the issues faced by the community banks and credit unions with their service providers:
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