Community banks lack the financial and human capital of their larger counterparts to invest in research and development, but they need new technologies all the same.
Partnerships with financial technology startups are a practical way to address this need, four of the state’s community bankers told Arkansas Business.
Programs like the inaugural ICBA ThinkTech Accelerator, which wrapped up last month, are a means to that end. ICBA stands for the sponsor, Independent Community Bankers of America, a national trade group based in Washington. It was also funded by a $250,000 grant from the Arkansas Economic Development Commission.
Eight companies were selected to participate in the 12-week program, which involved intensive training, mentoring and meetings with 44 community bankers from 28 banks, including the four who were interviewed for this story.
The bankers said the accelerator offered them:
- Access to vetted startups;
- The opportunity to collaborate with startups on the development of a product or service that could be customized for their banks and adopted in the future; and
- Exposure to new technologies.
The program was hosted by the nonprofit Venture Center at its office in the Little Rock Technology Park, and each of the companies received a $75,000 investment from the ICBA.
The accelerator was the first of its kind because of its specific focus on community banking, though the Venture Center also hosts an annual Fintech Accelerator sponsored by financial technology giant FIS of Jacksonville, Florida, and the state. The fourth iteration begins next month.
The ICBA ThinkTech Accelerator culminated with participants pitching their producst or services at the ICBA LIVE conference in Nashville, Tennessee, on March 18, and during a “demo day” March 27 at Winrock International’s Arkansas Regional Innovation Hub in North Little Rock.
Chris Johnson, Little Rock market president for First Financial Bank of El Dorado, was among the guests for demo day. Of the accelerator being held in central Arkansas, he said, “I think there’s a two-pronged benefit: reputational and financial.”
Johnson said the program put the state on the national and world map as a fintech hub and may lead to the startups relocating or opening offices in Arkansas, bringing jobs and tax revenue.
One Benefit? Partnerships
For community banks, one benefit of the accelerator was its ability to spark partnerships.
All four bankers interviewed said their banks were looking into partnering with a few of the accelerator startups, but most declined to name which ones piqued their interest, saying that it’s too early in that process to name names.
The exception was First Arkansas Bank & Trust of Jacksonville. It has already partnered with accelerator participant Teslar by 3E of Springdale, which offers software products that improve the accuracy of financial institutions’ data and increase efficiency by making information more accessible.
The why of such partnerships was best explained by ICBA COO Kevin Tweddle. He said, “It’s faster, cheaper, simpler and more secure. It’s really those four things that are driving community banks … It’s all relative to customer experience.”
He also noted that financial technology startups don’t have customers yet. They know technology, but they don’t know much about banking. Banks have customers and can provide that industry knowledge.
“It’s a natural partnership because the strengths and weaknesses of each align very well, and that’s why we’re seeing more fintech[-bank partnerships], particularly community bank-fintech partnerships,” Tweddle said.
He also said most projects are “build, buy or partner.” The first two require a lot of financial or human resources, so the third makes the most sense for community banks, because they have limited resources.
Johnson agreed. “From a community bank standpoint, obviously, we are capped at the number of individuals or number of departments that we can create and fund on our own,” he said. A community bank can’t afford to pay a full-time person or team to look into new software that would make the bank more efficient but still compliant with regulations, Johnson said.
“So we’re essentially able to use the research and development of these smaller companies and add them on to our existing software platform at a minimal expense to us,” he said. “And, then, also, on the bigger picture of efficiency, we just don’t have the money to spend on the labor force for one project at a time. We’re able to use the time and energy these companies have put into it.”
Molly Carpenter, vice president of marketing and publications at FNBC Bank of Ash Flat, said, “We’re competing against larger banks that have a lot more resources because they’re larger. They have more money. They’re able to utilize technology to drive down their efficiency ratios, and that’s something we have to keep our eye on as well because you get outpriced that way. [New tech] helps us remain relevant for our communities and the customers we serve.”
Roger Sundermeier Jr., senior vice president and chief branding officer at FAB&T, echoed the other bankers.
“We don’t have robust budgets for R&D. We don’t have huge marketing budgets. And everything these days, being so digital and tech-driven, is requiring mobility and agility. We just don’t have the bandwidth in house to support [new tech],” he said. “To have these third-party providers who can come in and offer these solutions that we, otherwise, would not be able to offer, and help us remain relevant and competitive with the larger [banks], the mega banks and global banks is a huge lift for us.”
► Largest Banks in Arkansas, ranked by total assets
In addition to efficiency, community banks are looking at partnering with fintech startups to retain customers by providing products and services they want.
Carpenter said customers want the frictionless, easy banking experience that new technologies can provide. They don’t want to bank using five separate mobile apps, for example.
“Like most community banks across the country, we are in a rural market. But just because we are in a rural market doesn’t mean that our customers don’t still want or expect the same technology that bigger, larger, national, regional banks can provide,” Carpenter said. “And so being able to find these partners who are interested in helping the community banks to bring these products to market, to bring them to market quicker and in a more cost-efficient way is really important for us.”
Tara Salinas, vice president of marketing for Merchants & Planters Bank of Newport, said customers’ wants have evolved. “We want to appeal to customers in the method that is best for them to do their business,” she said. “In the past, that was personal, face-to-face. Technology has changed the way we do business.”
“We want to be able to offer the best out there. We don’t want to have one online offering that’s subpar. As a community bank, too, it’s also challenging because, while we want to be able to offer all the digital, cool tech products that are out there, we also pride ourselves on our personal touch,” she said. “We don’t want to lose that. We want what we have to be convenient, to be easy to use … We also want them to know we’re not an online-only place. We have real people and they live in your neighborhoods and towns and you can call us and a real person will help you.”
Collaboration Also Helpful
The bankers also had high praise for the collaborative nature of the ICBA ThinkTech Accelerator.
Carpenter said collaboration is important because she often vets new vendors, services or tools for the bank, “but, many times, they are so robust, they are so large and they are so expensive that, even if we could afford them, their capabilities and everything that they do is far beyond what we need.”
What her bank needs is to provide products and services that are relevant, make sense for its customers and enhance the relationship between customer and banker.
The value of startups to community banks partly lies in their willingness to be agile and to make adjustments, to customize an offering to address the needs of a certain bank, Carpenter said.
Johnson also cited the opportunity to collaborate with the accelerator companies as a big benefit.
He said the ICBA and FDIC, regulators and large financial technology providers were part of that too. The startups listened to their feedback and tweaked their product of service accordingly.
Salinas added, “Some of the products and services were pretty innovative, and, to be real honest, pretty out of the box … We’re ready to innovate as well and it allowed us a lot of opportunities, and it opened our minds to a lot of possibilities.”
(Correction: A previous version of this article incorrectly stated that First Financial was headquartered in Cincinnati. It is headquartered in El Dorado. We have corrected the error.)