Small banks find innovative ways to innovate

With limited capital and smaller IT staff, smaller banks can't innovate in the same ways that deeper-pocketed organizations can. That's not stopping them from finding their own ways to go digital, enhance product offerings, and improve their customer experiences. Small banks accelerators Larger banks frequently use an accelerator model to encourage the buildout of ecosystems of partners and suppliers  around their institutions, The Barclays Accelerator, Wells Fargo Startup Accelerator and Chase's Financial Solutions Lab are examples of this model in the wild. But the accelerator model is hard to do for smaller banks that lack human and financial resources. When Kansas City-based nbkc launched its fintech strategy a couple years ago, it didn't set out to open an accelerator. Eric Garrison, the CFO and fintech strategy leader of the $651 million bank, found himself traveling around on airplanes visiting fintech entrepreneurs and connectors, like venture capitalists investing in financial services. “As we spoke with entrepreneurs, we began to think that it would be cool for us to plant our own flag with an accelerator program,” Garrison said. “They could come to us and we would get another way to obtain deal flow and access to entrepreneurs.” In May 2018, nbkc launched an application process and received over 50 applications from 33 cities in 13 countries. The bank chose six companies to come to Kansas City for a 75-day program that started in October. For participating in Fountain City Fintech, the companies received a minimum $50,000 investment in addition to introductions at the bank, development resources, and a ringside seat to understand nbkc's corporate culture. Fountain City Fintech's explicit goal is to culminate in forming an nbkc partnership with each company that comes through. "We think it's the best use of management time to drive our company forward" Garrison said. Pooling resources together Accelerators are resource and time intensive and out of reach of many small banks. Some institutions pool resources together with a focus on innovation. The Independent Community Bankers of America announced in October 2018 that it would launch the ICBA ThinkTech Accelerator, a community bank-focused program run in conjunction with The Venture Center in Little Rock, Arkansas. “Community banks and credit unions are also not competing for customers among each other and can benefit from collaboration and consortiums,” said David Donovan, executive vice president, financial services, Americas for Publicis.Sapient. Alloy Labs Alliance is an example of a shared innovation lab. As members, financial institutions can choose their level of involvement and leverage the consortium approach to reduce risks, lower costs, and speed up time to market to launch innovation efforts. “Given that smaller institutions are generally not able to invest at the same levels as large banks, they are cooperating and collaborating with other regional and community banks to establish a more meaningful investment pool that attracts fintech partners,” said Raja Bose, consulting and transformation services leader at Genpact. “This can be done in informal ways like sharing information amongst each other and more formal ways such as establishing consortiums and joint investment funds. Credit unions have been collaborating in this way for years.” Partnering on products Another way smaller banks find ways to be innovative is through partnerships with fintech firms. These can result with a bank offering a fintech product to its own clients. But sometimes, these partnerships are earlier on in the development cycle and can influence the form the product takes. “Banks are willing to take on the additional risks of working with startups if they get input into the product direction and potentially even upside of their success,” said Laura Spiekerman, founder and CRO at Alloy, a provider of KYC and AML technology to financial institutions. Radius Bank recently left its core vendor for Narmi, finding that the fintech banking solution was more responsive to its needs and product roadmap. “Working with fintechs gives us a seat at the table to determine the look and feel of our offering and the features we want to provide our customers,” said Chris Tremont, evp of virtual banking at Radius. “We like the younger, nimbler companies.” Together, Radius has embarked on a marketplace strategy that offers its customers access to integrations with best-of-breed solutions like Venmo (P2P payments), Billshark (lowering bills) and Lemonade (home and renters insurance). Understanding what customers want Some community banks leverage their greatest assets for innovation: close relationships with their customers. “We aren’t going to build better technology than the great tech firms, but we can add touches to the customer journey that are unique to us that provide a differentiated experience,” said Brian Heinrichs, CFO at INTRUST Bank. Where smaller financial institutions can't compete with innovation budgets of larger players, their relationships with their customers are a key asset. “Small banks have a unique advantage that they have a truly personal relationship with their customers and can leverage innovation to truly build delightful customer experiences and augment them with digital,” said Publicis.Sapient's Donovan. Small banks are also able to do more with less, by really listening to what their local customers need and delivering on it. The Citizens Bank of Edmond, a one-branch bank in Oklahoma, understands well the challenges of small business owners. CEO, Jill Castilla, describes herself as one. In response to these needs, the bank took excess branch and office space and turned it into a co-working space, complete with wireless charging stations, conference rooms and a podcast studio. Successful partnerships between small banks and technology providers are ones that play to the strengths of both parties. Doing this right isn't about small banks becoming a mall for financial products. Even if the bank isn't developing the technology behind the new products, typical product development cycles, like developing customers, soliciting feedback, are being employed. The new branch format, Vault 405 is run by Marla Lance, Citizens’ community manager, who’s also a former teller and operations specialist for the bank. Changes like these require the upskilling of small team talent to support newer formats and systems. Specialization leads to special experiences Almost 140 years old, INTRUST Bank began as an investor on FundingCircle's platform, deploying capital into loans. The relationship evolved from there into a marketing and referral partnership between the firms, where INTRUST went out to its customers with Funding Circle's loan products. “The truth is that understanding creditworthiness can be challenging for smaller financial institutions due to a lack of standardized credit information and the diversity of business models,” said Bernardo Martinez, Funding Circle's US managing director. “It’s hard to win in this area unless you really focus on it, which is what we do.” “We live in a world of specialization and for us to remain relevant, we have to partner with others,” said INTRUST's Heinrichs. “The days of being all things to all people are over. We can provide a wide array of products to our customer base, but in order to do it in the most effective way we need great partners.”