The effect of the global pandemic on customer behavior has further highlighted the need for financial institutions to undergo digital transformation. Digital transformation requires banks and credit unions to embrace partnerships with third-parties to deliver technology more efficiently and completely.
In fact, businesses of all types use third-party platforms to enable discovery and distribution of their products. Small businesses use platforms like Amazon and eBay to source customers and sell their products. App developers use the Google and Apple app stores to promote and distribute their apps. Restaurants utilize DoorDash and Uber Eats to attract customers and deliver their food.
In these examples, third-party platforms help sellers expand their markets by exposing them to a larger group of consumers than they would otherwise be able to access. These platforms support sellers in three ways:
- Enabling discovery of seller products;
- Enabling distribution of seller products; and
- Attaching platform-specific value-add services to seller products.
Platforms supporting bank payment products, loan products, and deposit products exist today and will continue to evolve. Community banks and credit unions should be looking for opportunities to take advantage of these non-bank platforms to expand their reach.
The promise is that community banks can leverage the digital prowess of platform companies to attract and onboard new customers then serve these new customers with the superior customer service that community banks and credit unions can uniquely offer. This hybrid model gives community banks a powerful competitive response to big box banks who can invest significantly in technology, but can’t provide hands-on, local–or regional–focused relationship management and customer service.
Embracing the potential of these third-party platforms requires banks to have technology that enables internal bank processes to mesh with the customer-facing experiences that third-party platforms expose. It also requires bank executives to change the way they think about bank products and customer relationships. Community bank participation in third-party distribution platforms requires the following:
- An API-based digital account opening solution; APIs allow account opening processes to fit into the platform provider’s user experience; The solution needs to flexible enough to accommodate financial institution-specific compliance-related workflows.
- System architecture that ensures new customers and accounts created via third-party platforms are propagated to all relevant internal bank systems, including the core, the servicing platform (digital banking platform), the customer relationship management (CRM) system, and any fraud monitoring systems; This can be simplified by ensuring the digital account opening solution interacts properly with the financial institution’s existing core.
- A partner to identify and facilitate partnerships with relevant third-party platform providers.
- A compliance team to work with the business to ensure that new partnerships and supporting technology are developed in a way that does introduce unacceptable financial or compliance risk.
In addition, community financial institution executives need to acknowledge and embrace the idea that technology-driven customer acquisition requires a new mindset. Community banks and credit unions historically own and operate their own end-to-end distribution channels.
Consumers today acquire deposit accounts through channels that are fully controlled by the bank or credit union, traditionally the branch. Once partnered, this changes as the third-party platform controls the initial experience a consumer has with a financial institution. Financial institutions need the right technology to seamlessly merge a customer experience that starts with a third-party platform and ends on the bank’s own platform(s).
Modern digital banking providers are a good place to start looking for support. The good digital banking providers excel at the connectivity work required to create a holistic banking experience that is made up of solutions from multiple third-party providers. Financial institutions should look for well-architected modern digital banking solutions that can consume APIs from and expose APIs to third-party platforms.
Technology architecture, however, should not be the only consideration when choosing a partner who can help the bank engage with platform providers. A community bank needs a partner with the sophistication and industry connectivity to help broker relationships with relevant platform partners. Bank execs should look for partners who are already part of platform ecosystems and push them to help the bank navigate.
The next frontier that will differentiate growth banks from non-growth banks is discovery and onboarding. How does a potential “digital native” customer find the bank and start a business relationship? Third-party distribution platforms are part of the answer.
Platform banking is the future, and those community banks and credit unions who embrace this future earlier stand the best chance of growing, or indeed surviving, as the next generation of bank customers emerges.
