With changes afoot in the market, such as Open Banking, many barriers to switching banks have been removed. If customers aren’t satisfied, it is now much easier for them to simply move somewhere else.

This presents a dilemma for smaller institutions such as community banks. While successful in their own right, community banks simply don’t have the same resources as national banks that are plowing millions, sometimes billions, into digital transformation. It follows that, if they lag behind on innovation, they are most at risk from larger competitors.

Established brands often look to start-up culture for inspiration, for fintechs seem to be the most agile, the most responsive and most tuned-in to the zeitgeist. But it would be a mistake for traditional brands to try to ape the start-ups’ behavior. Failing fast, experimenting (i.e. failing often), and making decisions on the hoof is not a good strategy for companies whose business proposition is built on trust and stability.

That said, smaller banks can still be innovative. Both personal and corporate banking customers look for services such as customer service chatbots, virtual assistants, real-time payments and added-value services, such as financial planning tools and expense management. But delivering them needn’t mean a complete systems overhaul, even if it were possible.

With API-led, cloud-based, third-party fintech providers, smaller institutions can access high-level services with low-level commitment. Scaling up and down becomes much simpler as a result, as no investment has been made in embedding technologies. The trend is more geared towards an ‘all you can eat’ level of service.

Even in areas where foundational banking services are being impacted by digital transformation, smaller community banks can still keep pace with their larger rivals.

Regulation, in particular, can be a sticking point. It places a burden on both the customer and the bank in terms of additional paperwork and compliance steps. Know your customer (KYC) can prove time-consuming and the smaller the bank, generally the lower the resource for processing data. As a result, bigger banks with more resources can process data faster and improve the experience, making themselves seem more attractive. Inevitably, they can also invest in digital onboarding systems, further speeding up the process.

However, there are options. Firstly, US regulators are seeking to lighten the regulatory load on community banks, recognizing that the smaller banks are less exposed to the large-scale risks experienced by national and global institutions. This should mean that community banks will need to divert fewer resources to administration and will be able to focus on improving customer experience delivery instead.

One regulation yet to be loosened, but where there is a clear demand for it, is around money laundering and KYC. It would seem to make less sense for a community bank, for example, to have the same number of employees dedicated to monitoring transactions as there are in a multi-billion dollar organization.

But community banks can also help themselves when it comes to lightening the administrative load. Typically, anti-money laundering (AML) systems fail when there is not enough data to help distinguish genuine transactions from criminal activity. However, machine learning can connect the dots in data, revealing patterns often missed by even the most experienced humans. This means fewer false alerts, as well as fewer missed opportunities to catch criminal activity. As not every community bank is able to build its own machine learning technologies from scratch, bringing in API or cloud-based fintech solutions is an effective way of accessing these capabilities and improving the customer experience without, forgive us, breaking the bank.

Community banks have often found themselves between a rock and a hard place when it comes to innovation. They are neither small nor young enough to adopt a start-up mentality, nor large enough to dedicate whole teams and budgets exclusively to innovation. But today’s modular and adaptable fintech environment liberates community banks. It allows them to offer competitive and innovative products alongside the long-established trust and relationships they have built up with customers over so long.

Jared Silvers

Jared is a business development rock star who is laser focused on partnering with fintechs and mid-sized banks to grow their bottom line. After starting his career at Morgan Stanley, Jared knows the way money flows through the financial system —and it's not without friction! At Currencycloud Jared is dedicated to helping other fintech companies and banks build innovative digital first cross border payments, receivables and FX solutions to help meet the rapidly changing client expectations.