Community FIs Consider The Competitive Advantage In Business Banking

Financial institutions of all sizes are waking up to the demand among their business clients for diverse product offerings and a better user experience. And rather than allow FinTechs to capitalize on those needs, traditional financial institutions (FIs) want in on the action.

That’s changing the bare minimum these financial service providers need to offer their business clients, according to Stephen Bohanon, founder of digital banking platform provider Alkami. Smaller community and regional banks, especially, have the opportunity to embrace modernization to compete with their FinTech rivals, but it’s not just a matter of technological transformation that will give these institutions a leg up.

As Bohanon told PYMNTS in a recent interview, these financial service providers will need to be strategic about the way they capture business clients from industry rivals — and it’s an effort, he says, that will also require a mindset shift.

The One-Stop Competitive Edge

For financial institutions looking to step up their business banking game, the bare minimum of a digital transformation initiative must include integrating features already offered by FinTech competitors. No longer will the basic account and payment services work for attracting new clients.

“What’s the carrot to come over and switch my accounts over to this new financial institution?” noted Bohanon. “To unseat and replace a competitive product, you have to at least have the features that the competitive product has.”

Of course, merely offering the same tools that rivals provide, like accounting and cash management features, aren’t enough to entice businesses to make the banking switch. But by consolidating a variety of services that a business may already be getting from multiple bank and FinTech offerings, financial institutions can provide the “one-stop shop” that Bohanon said can be an enticing value proposition for new clients.

A robust set of features is the number one priority for banks looking to ramp up their business banking offering, he said. Number two is user experience, a focus that reflects just how competitive the business banking arena is becoming. Not only do business customers need interfaces that support streamlined workflows but also, as Bohanon noted, an easy-to-use platform that can help those firms prevent mishaps like duplicate invoice payments — a risk of complex or confusing portals.

A Mindset Shift

Banks’ payment offerings are a powerful example of the opportunity for financial institutions to ramp up their competitive position in the market — offer not just ACH payments but same-day ACH payments, along with support to help clients migrate away from paper checks, can be value-added services that differentiate one FI from another.

Understanding how to elevate the business banking offerings beyond what rival banks or competing FinTechs provide is key. But for many FIs, including community banks, there are self-imposed limitations to their ability to capture greater market share.

Today, the current understanding is that traditional FIs must fear the impact of FinTechs creeping into the marketplace as they look to acquire banks themselves and disrupt the ecosystem with their technology-savvy offerings. But Bohanon said those FinTechs may be wise to fear the banks, too.

“Being really good at technology and digital experiences, that’s typically not something that qualifies you to be really good at banking,” he said. While that may be the case a decade from now, today, banks remain the leaders in banking, and they can use that to their advantage to either displace or collaborate with FinTechs.

The result is that many financial institutions already have a competitive edge that can help them grow beyond what they currently imagine. A small community FI may assume they cannot attain a national footprint, but through a strategic digitization effort, technology partners can help those banks expand beyond their current geographies — and rival FinTechs while they’re at it.

“It’s almost a mindset shift that needs to happen,” said Bohanon. “The long-term winners will be the traditional financial institutions that digitally transform and make it harder and harder for FinTechs to gain market share.”