FinTech partners pave the way for branchless banking

The successful digital bank offers more than banking services wrapped in an online package.

Treasury Prime Vice President of Banking Jeff Nowicki, Emprise Bank Senior VP of Innovation and Development Emily Reisig and Zeta CEO Aditi Shekar told PYMNTS that the branchless approach has the potential to open up new opportunities for both traditional banks and FinTechs.

But to get there, vendors must understand the changing needs and wants of their targeted, tech-savvy—and younger—customers.

PYMNTS own studies show that a majority of consumers love digital banking functions and are happy to use digital banks and FinTechs. But fewer than 10% use them as their primary account.

Shekar noted that — with a nod to the millennials out there who choose to interact with their financial service providers online — “our generation has evolved as a digitally native generation.” And as these consumers age, the expectation for all aspects of life, banking included, is that experiences will be “upgraded” to become increasingly accessible online.

As so much of life moves online, Shekar said, “community is not going to be about where you live — it’s going to be about who you like to talk to and who you like to spend your time with online.”

The pressure is therefore on for the banks to upgrade their digital offerings as well, which enables a seamless flow of money movements. To do so, financial institutions (FIs) and FinTechs both need to better understand the real changes taking place in the households they seek to serve.

We are no longer in what Shekar called “single payer mode,” where one person earns the money and spends it. The millennial generation, she noted, is typically characterized by dual-income households, and younger consumers neither earn nor manage consumption — or share it — in the same way as their parents.

Emprise Bank’s Reisig noted that “there is pressure from technology and innovation – the technology experiences are becoming the new expectation of our customers.”

Connecting banks and FinTechs

In the past, panelists said, banks may have viewed FinTechs with suspicion, and consumer FinTechs may have sought to build everything in-house, or saw bank deals as a key way to create the digital bank of the future.

But Reisig said there is room for a partnership model where FinTechs can innovate, create delightful experiences and resolve frictions inherent in the digital channels emerging in financial services. Banks like Emprise, she said, can be a supportive banking partner and bring their knowledge and expertise to bear on all kinds of critical banking products.

The banks and FinTechs need some connective tissue to tie their respective strengths together, said Nowicki, who added that vendors including Treasury Prime can help connect the two sides of the digital banking equation. Banks, he said, are bringing their strengths in risk management and regulatory compliance to the table as purely digital relationships between consumers and banking entities continue to be built.

– It is important for the banks that enter [the digital banking] space,” he said, “to keep control of certain aspects of the programs and relationships.” For FinTechs, Shekar said, that’s the benefit of not having to build deep integrations with each and every banking partner.

As she noted, “I’m not a compliance expert—I’m a software developer, and I like the ability to stay on track while still leveraging the capabilities of a bank partner and Treasury Prime at the same time.”

Long-term evolution

The partnerships, the panelists told PYMNTS, are critical, because there is still a way to go in the development of the digital bank. Nowicki predicted that in the years ahead, we will see more specialization as providers add more services. All kinds of providers, Reisig said, have the ability to build specific customer bases and maintain wallet share.

And as the digital bank continues to develop, there will be an opportunity to become consumers’ primary bank.

“The upside to making the digital bank the primary bank is to solve some benefit issues,” for innovative interactions that have typically involved cashier’s checks and even access to cash. Shekar observed that FinTech 1.0 had traditionally not been able to solve for the “last mile” delivery of financial services. But now with the development of infrastructure and partnerships, there is the possibility, for example, to pay for big tickets such as cars through the use of apps (avoiding the cashier’s check).

Against that backdrop, Nowicki said, embedded finance represents a huge opportunity for consumers and businesses who want to bank where they are — and for the financial and finance companies that seek to serve them. Embedded finance, Reisig said, represents far more than just a neobank sponsorship opportunity. Banks and FinTechs, Nowicki offered, will look to consumers through non-traditional products (like small business microloans), as application programming interfaces make data access easier.

“It’s embedded banking in multiple places and digital experiences and throughout customers’ daily lives,” she said, as Nowicki observed of the rise of digital banking: “It’s not necessarily reinventing the wheel, it’s reinventing the user experience on new.”