August 20, 2019
By Christian Widhalm
In a bid to compete with fintech start-ups, Discover recently said it will no longer charge fees for its online checking and savings accounts.  While Discover already had a no-maintenance fee policy on such accounts, it is now going further by eliminating penalties for insufficient funds, excessive withdrawals and stop-payment requests.
This action underscores the new reality for banks and other traditional financial institutions. As the emergence of fintech start-ups disrupt the financial marketplace, it has forever changed the demands customers make of financial services providers. Customer experience must be best-of-breed, from no-fee checking and savings accounts, to instant loan approvals and AI-enabled wealth management.
Traditional financial institutions – particularly regional banks and credit unions – are playing catch-up to offer a digital consumer experience that is equivalent in quality, convenience and price to what is available from a fintech or a large bank. Resources are limited in terms of access to IT talent and capital to invest in digital innovation on the same scale as a fintech or national competitor.
Build on Strategic Strengths
But, regional financial institutions do have strategic strengths that they can leverage to compete with disruptive fintech start-ups and well-resourced banking giants. They have deep relationships with loyal consumers, many of whom use multiple products and are less prone to move to a competitor. Lenders have vast amounts of data on these relationships, which they can use to make their digital solutions more responsive to consumer needs.
Finally, regional banks and credit unions have stable sources of low-cost funds, in the form of deposits, while fintechs typically have relied on less stable and more expensive forms of capital.
Many institutions have learned that the key to competing in today’s environment is to build on these strengths while ensuring that its digital products and customer experience are appealing to consumers. There are several steps that regional institutions can take to compete against digital disruptors.
Use Data to Identify Digital Gaps
The first step is for regional institutions to identify the “digital gaps” in their product portfolios, such as whether they have a full-featured mobile banking experience. This includes bill pay, the ability to easily transfer funds, and digital lending solutions. Using the treasure trove of data they have accumulated over many years, institutions should be able to identify the types of financial decisions their customers are making every day, and then focus on adding the digital solutions that are most relevant to them.
Find the Right Partners
Once a bank or credit union has identified the main gaps in its digital financial product portfolio, it can go about finding fintech partners to help close those gaps. In fact, a majority (78%) of U.S. commercial banks are thinking about bolstering their in-house capabilities and accelerating digital transformation through fintech partnerships, according to a recent industry report.  At LendKey, for example, nearly 300 banks and credit unions use our platform to offer digital lending programs such as private student loans, student loan refinancing, and home improvement loans.
It is important to partner with a firm that not only has expertise in a critical digital service, but also has robust systems and processes, strong security protocols, and rigorous risk management. The fintech partner will be an extension of the bank or credit union, and must therefore be able to deliver reliable, high-quality service that meets all of the demanding compliance and regulatory requirements to which financial institutions must adhere.
Deliver a Great Customer Experience
Outside of security, a poor online customer experience is the greatest risk to consumer-focused financial institutions today. It is essential that the user interface for any digital financial product be simple, intuitive and easy to navigate. The simpler the process and quicker the response time, the greater the level of consumer satisfaction.
A distinct advantage that banks and credit unions have versus fintech start-ups is a physical branch network. While digital technology offers the advantages of easy access and fast decisioning, sometimes there is just no substitute for a brick-and-mortar branch staffed by expert professionals who can provide consumers with advice and guidance on major financial decisions. Traditional lenders can offer a best-of-both-worlds “phygital” experience by partnering with an established fintech to create a white-labeled digital backbone, while also offering access to branch-based staff.
The need for banking institutions to deliver the innovations that consumers demand – while also operating in a cost-efficient manner – will continue to drive the financial services industry’s pivot to digital.  Regional institutions need not fear that they lack the capital and talent to compete in a digital marketplace. Partnering with innovative fintech start-ups will allow smaller banks and credit unions to offer the digital services modern borrowers demand – made even better by the personal relationships, data-driven consumer insights, access to branch-based experts, and cost-efficient capital that are the unique hallmarks of traditional banking institutions.
Christian Widhalm is the Chief Revenue Officer for LendKey Technologies, a Lending-as-a-Service platform who has partnered with over 280 banks and credit unions. Christian leads lender partnerships and works with clients to create profitable and successful digital lending programs. His tenure at LendKey began in 2010 and he has carried impactful leadership roles covering nearly every surface of the organization. Christian is an expert in digital lending and frequently speaks to bank executives on how to better attract the Millennial demographic. His career began working in partner sponsorships for Major League Baseball and holds Bachelor of Science degrees in Finance and Entrepreneurship from Syracuse University.