For traditional banks, a digital banking strategy is all about digital transformation: they have the banking services but are woefully behind in technology or even customer service.
For Fintechs, it’s a completely different ball game. Your digital banking strategy must focus on how you’ll win business from traditional banks because of your digital advantages; the area you need to enhance to make that possible is your range of banking services.
Long-term success with these digital banking strategies boils down to two key factors:
- Narrowing down the focus of your service
- Selecting partnerships that are beneficial from day one
Where most Fintechs fail in their quest to compete as a digital bank is in their focus or scope. If you start out with the goal to “do it all” and be the next challenger bank from scratch, chances are you’ll fail within 6 months or a year. You won’t have enough structure, enough differentiators to carve out a place between specialized Fintechs and established banks.
Consider these questions. Do you:
- Have a mission statement?
- Know your audience?
- Tackle a particular pain or need that traditional banks are not addressing?
Find your niche
Rather than trying to go from zero to 60, Fintechs that see success start with a niche solution in a traditionally underserved area and evolve from that core service — our last post on evolving your Fintech platform used Robinhood as an example.
A focused approach will future-proof your strategy because you’ll not only establish yourself as the go-to digital provider of a traditionally manual service, but you’ll also grow a firm customer base. From there, it’s far easier to expand by tacking on related financial offerings.
And identifying that niche starts with understanding the gap between customer expectations and existing solutions.
Know your audience needs
These underserved or “underbanked” areas come in all shapes and sizes, from getting paid a few days earlier to making it easier to bundle loans. You need to dig into core areas of frustration that traditional banks can’t resolve without massive overhaul or digitization.
One of the prime examples of this is commercial banking, which has lagged far behind personal banking. There’s currently an enormous need for enhanced digital banking capabilities for small and medium businesses, from international supplier payments to automated banking APIs to digital invoicing.
If focus is the internal factor that can make or break your digital banking strategy, partnerships are the external factor. Partnerships must be a fundamental building block of your strategy, not an afterthought or a nice-to-have.
When assessing a partner, look for these factors:
- Can they scale with you, or will you outgrow their offering as you expand?
- Do they have existing customers, or are they a newer business still establishing their base?
- Do they provide dedicated support and assistance that is readily available to help you meet your goals?
- Do they have a “plug and play” ecosystem, or would you need to build manual connections?
- Are they a true partner or a parasitic partner that would steal customers?
If the answer to any of these questions isn’t favorable, that partner isn’t right for your digital banking strategy. They may help you in the short term, but they’ll hinder you long term.
The bottom line is, any partner you choose shouldn’t just offer you some good options that’ll be handy in the future. They should immediately help your Fintech take you a few steps further in your journey toward becoming a digital bank.
Work smarter, not harder
The reason partnerships are so important is that in digital banking, nearly everything is already built. You can find just about every type of solution via a Banking as a Service (BaaS) provider that’s already done all the hard work of building a platform. You can just slot your Fintech on top of it.
That way, you can pick and choose pieces of a financial ecosystem to create the ideal experience for your customers. Ideally, you’ll have multiple providers for each financial service you offer for redundancy — all without building them yourself.
Choose the right BaaS
Wondering which BaaS might be right for your needs? A frequent stumbling block for Fintechs building their digital banking strategy is simply choosing the right solution.
Here’s a quick guide based on our extensive experience advising customers:
- For everything card related (issuance, credit, debit, prepaid): Marqeta.
- For truly comprehensive API banking services: SynapseFI or Hydrogen.
- For direct bank relationships see sponsored banks like Radius Bank. Radius is committed to working with Fintech’s who enable enhanced SME banking
- For niche services like ACH debit/credit, rather than robust banking: Dwolla.
Of course, this is a very abbreviated list — chat with us to get our thoughts on a particular provider or solution area!
Ready to future-proof your digital banking strategy? Download your Payment Provider Playbook to learn how a partner that handles your payment needs for you can help you become a Fintech bank.