In 1967, the first automated teller machine (ATM) was installed in a Barclays branch, enabling banking customers to withdraw cash from their account without visiting a teller line.

Since then, technology has taken center stage in financial services. Today, consumers have instant access to their entire financial lives no matter where they are on the planet, giving rise to heightened expectations and relegating what used to be known as “banker’s hours” to the dustbin of history.

To meet these demands, hundreds of new FinTech firms have arrived in recent years, each targeting different pockets of the financial consumer’s wallet by offering unprecedented levels of convenience in payments, borrowing, saving, budgeting, investing, and more. Regional and community financial institutions have needed to adjust on the fly to address these threats and meet consumers’ evolving demands.

Understanding the FinTech challenge

Over the past couple of decades, FinTechs have introduced numerous innovations to the marketplace, including digital payments, blockchain, AI, buy-now/pay-later (BNPL), embedded finance, and the use of alternative data in credit decisioning. Firms like PayPal, Apple Pay, Stripe, Chime, Ripple, Affirm, SoFi, and Revolut have become household names, each offering their own twist on banking within the digital sphere.

This is making it increasingly difficult for banks and credit unions to differentiate themselves, as it is now incredibly easy for consumers to compare products and services among multiple providers from all over the world.

Indeed, FinTechs continue to strengthen, even in the post-pandemic economy. The FinTech industry is projected to grow to $1.5 trillion in worldwide revenues by 2030, reaching 7 percent of market share from its current 2 percent share.

As a growing number of individuals, households, and small businesses can conduct their financial lives solely in the digital realm without ever having to visit a physical branch, the threat to incumbent institutions becomes more acute. FinTech has permanently changed the financial consumer’s digital service expectations, increasing the risk of losing primary financial relationships to more tech-savvy alternatives.

5 ways community FIs can compete effectively in the digital age

Yet all is not lost. Community-centered financial institutions (FIs), including hometown banks and credit unions, maintain several unique market differentiators that can be used to their advantage. Here’s the secret sauce for community-based FIs looking to stave off FinTech competition — and indeed, thrive — in the digital age:

1. ​Enhance your digital-banking capabilities: Today, it’s critical for community and regional FIs to evolve their channels of engagement to meet consumer expectations. This means offering fully functional mobile-banking applications that allow customers and members to complete routine transactions on their preferred device. It also means empowering financial consumers to engage in more complex transactions — like applying for a loan, opening new accounts, and exchanging and signing documents —completely online.

2.​ Focus on niche markets and personalized services: Despite their success and rapid growth over the past two decades, the FinTech market has experienced some correction over the past couple of years. Venture capital investment is way down in the sector, and several high-flying firms have begun to retrench.

This makes it an opportune time for incumbent institutions to analyze their customer base, and double down on those segments they serve particularly well. These segments may include niche services like SBA lending to small businesses, or mortgages for first-time home buyers. Start by identifying the most profitable areas, and then increase investment in people, processes, and technology to support these opportunities.

3. ​Up your marketing game: Speaking of investment, this is no time to tighten the marketing purse strings. Financial consumers are subjected to an endless stream of messaging from FinTechs and big banks, and local institutions must find a way to break through the noise.

Focus on educating your target market — including current and future customers — on the digital capabilities you currently offer, along with ongoing enhancements and features, and how to maintain a safe presence online.

4.​ Promote and capitalize on your strengths: As FinTechs pursue new markets, now is a perfect opportunity for community institutions to capitalize on their strengths: their physical footprint, personalized service, and deep roots within their communities.

FinTechs can’t compete with the brick and mortar, in-person access traditional institutions provide in-branch. Hometown banks and credit unions have the local community knowledge and expertise that can’t be found online. When coupled with digital convenience, it’s an unstoppable combination.

In your marketing and communications plan, make sure to include messaging that emphasizes the many ways that members or customers can engage with your institution, and receive personalized service when they need it — whether online, in the branch, or through the contact center.

5.​ If you can’t beat them, join them? As disruptive as FinTechs have been to financial services, it’s indisputable that they have helped move the industry forward. FinTechs have helped push incumbent institutions toward the future by introducing digital innovations and unprecedented convenience to an eager public.

That’s why it may make sense to selectively partner with FinTechs. Not all financial-technology companies are focused on stealing business from traditional institutions. Many have a mission to support banks and credit unions through back-office technology, streamlined process automation, and white-labeled digital solutions. FinTech doesn’t have to be the enemy.

In fact, according to Forbes, collaboration is the new FinTech model, particularly as formerly high-flying firms hit roadblocks in terms of regulatory oversight, reduced investment, and market saturation.

Selective integration with technology that provides consumers with a better banking experience is a win-win for everyone. Financial institutions receive access to innovative technologies, improved service delivery, and the elevated ability to meet their customers or members where they are.

Preparing for a digital future

To effectively compete — or strategically partner — with FinTech, it’s important for community and regional banks and credit unions to foster a culture of innovation. A rigorous focus on continuous learning and change management will help even the most resource-constrained organizations keep pace with digital advancements and the evolving needs of their customer or member base.

Marketing leaders must be at the forefront of these efforts, by advocating for the adoption and development of new digital initiatives and partnerships, while engaging in ongoing messaging campaigns that promote convenient digital access to current and future clients.        

Steve Johnson is managing partner at Riger Marketing Communications in Binghamton. Contact him at sdjohnson@riger.com.