The Challenges Facing Community Banks

Written by: Currencycloud
Published on: August 23, 2016

Technology developments are shaking up every part of the financial industry, and traditional community banks will not be immune. Continuous disruption of financial services is helping to lower costs and provide new services that better meet the needs and preferences of time-poor customers. If community banks cannot keep pace with these developments, they will see their previously loyal clients leaving for competitors who can.

Technology changes, compliance doesn’t (yet)

Compliance Management

No matter how much technology changes, your legal and compliance responsibilities remain constant. Which means that every new product or service you offer to clients must be engineered for compliance. As your business embraces financial technology, there are three key considerations:

1. Anti-Money Laundering (AML)

Financial institutions have a duty to take proactive steps to prevent money laundering activities. Every technology-based solution will consequently need to provide insight and analytics that can identify and flag suspicious activity.

2. Fraud detection

Electronic financial systems have helped customers better manage and move money – but they have also increased the opportunities for misuse and fraud. As your community bank adopts FinTech-type services, there will be a need to detect and report potential abuses.

3. Transaction monitoring

Financial regulators demand proof that your processes adhere to relevant compliance guidelines. Transaction monitoring allows you to capture and record client data, providing much-needed proof to be used in the event of an external audit.

The international dimension

The internet has massively improved the speed of global commerce – a customer in San Francisco can place an order with a supplier in Shanghai with just a few mouse clicks. The emergence of FinTech payment platforms has taken it even further, making it incredibly simple for customers to pay for their goods online.

Obviously, community banks that are unable to offer their customers international payments capabilities will lose business to competitors who can. Community banks that do offer international money transfers are often dependent on reselling services offered by larger competitors, increasing the cost to the customer and eating into the profit margins for each transaction.

The old has gone, the new has come

Perhaps even more important than international payment processing facilities is the speed and ease with which customers can send and receive cash. The instant gratification market exemplified by Uber and Airbnb has affected every customer interaction. They simply will not wait a number of days for their money to clear.

This demand for real-time payment processing is at odds with many traditional processes like check clearing. Paper-based monitoring techniques may work but they are far too slow to use for instant transfers. Which means relaxing compliance rules (a very bad idea), or using advanced technology to automate many of the checks.

Speed is everything

As transaction volume and complexity increases, banks of all sizes will need to identify new ways to manage client and compliance demands. Increasingly organizations will need to invoke Big Data techniques to better identify fraud, and opportunities to improve operations, cut costs, or to develop new products that meet customer preferences.

And with the speed of financial processing increasing exponentially, there is a need to create sophisticated algorithms that can monitor everything. Otherwise banks risk failing to meet their three obligations – anti money laundering, fraud detection and transaction monitoring. Automation will also play a key role in helping to increase the speed at which a community bank can operate.

A question of investment

Payment Processing

Your existing systems have undoubtedly grown out of many years of investment and refinement which is why you can be sure they are able to cope with compliance requirements. And every new service needs similar investment of time, resources and money if they are to be similarly bulletproof.

For a community bank trying to play catch-up, the expenditure required is staggering. Achieving the scalability offered by cloud-based FinTech services can be incredibly expensive. Costs are further increased by the development of new software and the need to attract suitably skilled technical staff.

Even if smaller banks think they have the reserves required for a major overhaul of their products, services and technology, the FinTech market is still accelerating ahead. Banks starting their own technology projects now will permanently be playing catch-up in a race they simply cannot win.

The future is in partnerships

FinTech providers like Currencycloud are continually raising the bar by providing real-time international payment handling services. More importantly for community banks, Currencycloud also offer white-label access to their platform without the need for large capital investment.

This opens a world of new opportunities for community banks. With the right integration they can give their customers access to international payments that are quick and easy to use. This approach also helps to greatly reduce the cost of each transaction, allowing banks to offer their customers lower rates and protect their margins.

Finally, Currencycloud is built with compliance at our core. Your bank is freed from the administrative overheads of ensuring transactions are compliant, immediately solving one of the three problems you face in the age of FinTech. Currencycloud also provide you with the data you need to assist your anti-money laundering and transaction monitoring efforts.

The reality is that the only way community banks can compete against larger banks, and pure-play online services is through partnership with a FinTech platform like Currencycloud. To learn more about what we can do for you, or to arrange a demo of our platform, please get in touch.