Fintech is helping a growing number of banks and credit unions reconfigure the communities they serve.
Historically, financial institutions have focused on clients based on geography, be that a neighborhood or city for banks or a local company or industry for credit union membership. Over time, those boundaries became more fluid as banks entered new markets and credit unions expanded their fields of membership.
Technology is allowing for an even bigger footprint.
Financial institutions increased use of technology, such as digital banking and online loan applications, allows them to reach beyond their backyard to bring in new business at a lower cost than hiring top producers or opening branches allows.
Data analytics can support segmentation, helping banks and credit unions identify new market methods based on professional fields, demographics, affinity groups, and spending habits. Efforts can be streamlined by dissecting a potential customer base, identifying ways the FI can help, and going after those specific clients.
Segmentation can also help FIs offer products and services that resonate with specific groups within their client base. A recent SRM report found that an increasing number of consumers value sustainability efforts – which could motivate more banks and credit unions to create and offer loan and deposit products focused on areas such as clean energy.
Given their purchase histories, groups with shared interests could also become fertile ground for specific Buy Now Pay Later (BNPL) services.
There are many ways that FIs can rely on fintech to tap into nontraditional communities.
Banking-as-a-Service (BaaS) is an emerging avenue for banks and credit unions to access clients in a cost-effective manner. With BaaS, banks allow fintechs to connect to their cores to create accounts and process payments using a regulated infrastructure.
Central Pacific Financial in Honolulu, HI, which is counting on its new BaaS platform to bring in more customers in the mainland US, is close to helping its first client launch.
Other banks that offer BaaS to niche-oriented neobanks include MetaBank, which serves Daylight (the LGBTQ+ community); Piermont Bank, which supports Nerve (musicians); and The Bancorp, which assists Purple (disabled consumers who receive government assistance).
FIs are also turning to point-of-sale lending to tap into specific spending habits.
Truist Financial in Charlotte, NC, is looking to buy Service Finance, while Goldman Sachs in New York recently bought GreenSky. Service Finance and GreenSky focus on home-improvement projects. GreenSky also helps people pay for health care costs.
FIs are warming up – albeit slowly – to working with third parties on crypto products and services, which studies have shown significant adoption in traditionally underserved markets. Many FIs are waiting on clear-cut regulatory guidance before taking the plunge.
In Tulsa, OK, Vast Bank worked with CoinBase and SAP to power its crypto platform. The family-owned bank saw a 25% increase in customers in the initial months after its crypto rollout.
There are other fintech collaborations afoot, as well, to bring in new business from far-flung markets.
First Tech Federal Credit Union in Mountain View, CA, is working with Happy Money in Costa Mesa, CA, to bring in new members by promoting personal loans. Happy Money is the initial point of contact for consumers – who eventually become First Tech members as part of the loan origination process.
Happy Money also has longstanding partnerships with Alliant Credit Union in Chicago and Technology Credit Union in San Jose, CA.
The Bottom Line
The advancement of technology, which will only intensify in the years ahead, can empower banks and credit unions to move beyond geography to hone in on customers based on their affiliations, spending habits, and professions.
This type of expansion could be achieved at a much lower cost than the tried-and-true method of hiring seasoned lenders and opening branches. The key is to keep an eye on underwriting, making sure the tech partners maintain standards in line with your own.
Bringing in a trusted adviser, such as SRM, to vet those relationships is essential for such an expansion strategy. We are ready to help you reinvent your institution and find innovative ways to grow and expand.