Legacy banks have historically offered traditional bank products, which encompass loan, discount, deposit, and trust services. Now, they have begun to slowly evolve into offering banking services beyond traditional products alone.
These banks are entering into previously unexplored sectors, forging partnerships with fintechs, and embracing digital transformation and other services during COVID-19. Here’s what you need to know about how banks are seizing such opportunities.
Opportunities in new sectors
New and lucrative revenue opportunities can result in banks emphasizing services beyond traditional bank products.
For example, the online bank Vive recently developed an innovative Benefits Platform that enables employers to allocate funds to employees to cover unaffordable medical expenses. While healthcare is not a traditional banking focus, products such as Vive’s have proven to be valuable assets to both banks and consumers alike.
In Vive’s solution, employees make contributions each pay period, which are often matched by employers. If medical expenses occur and the funds in the account are not adequate, individuals can elect to receive a 0% interest line of credit from Vive to pay off the remaining claim amount. Members who utilize the program fund their medical expenses through payroll contributions and access funds by way of a universal debit card provided by Vive.
The result is a win-win: employees have immediate access to funds to cover medical expenses, while employers cut their healthcare costs without exposing their employees to financial risks of unexpected out-of-pocket medical debt.
Vive’s program was made possible through its partnership with Avidia Bank, a community bank headquartered in Massachusetts. The partnership included Avidia’s sponsorship of the Vive debit card as well as providing “Open Banking” APIs to facilitate a streamlined on boarding process in addition to a feature rich digital interface. .
“Avidia Bank is thrilled to expand our partnership with Vive Benefits,” said Avidia Bank COO and EVP Robert Conery in an announcement of the continuation of their partnership. “We are committed to innovation, and Vive’s unique payment solution brings value to a market in need, while offering true financial protection for their members.”
Opportunities to partner with fintechs
While banks have historically viewed fintechs as rivals in the banking space, this mindset is beginning to change. Banks are starting to recognize the value that can come from fintech partnerships.
In a PaymentsJournal podcast, Mercator Advisory Group’s Tim Sloane explained that for banks, “composing a solution using fintech business partners is a unique opportunity that’s expanding into the market, increasing the depth of friction and connectivity a company has to its customers, and providing new revenue opportunities.”
Even as fintechs seize opportunities to provide banking services, financial institutions have a role to play. They can offer APIs and a bundle of payment and financial services to fintechs and independent software vendors (ISVs), granting them access to payment rails.
The result, once again, is a win-win. Fintechs leverage bank partnerships to drive innovation, and banks benefit from fintech partnerships through the offering of APIs and regulation-compliant financial services. “It’s kind of a magical combination where all three parties work together in collaboration,” said Robert Conery, COO and EVP at Avidia Bank, in a separate PaymentsJournal podcast.
Opportunities to embrace digital transformation
Since the pandemic began, digital transformation has been a hot topic in the payments industry. Physical bank branches closed or severely reduced in-person capacity, which triggered a need for banks to find new ways to engage with customers. The result was an avalanche of digitization among banks around the world.
It also drove the need for banks to help customers who were not used to digital-first banking solutions. While some customers transitioned with ease, others took a bit longer to adapt to digital processes such as identity verification. But with a little extra support and care from their banks, even digitally-resistant customers have settled into digital banking habits.
Even as branches have begun to reopen and increase capacity, much of the shift in consumer behavior toward digital banking services is here to stay. This makes it pertinent that financial institutions offer secure and frictionless online services.
Banks are also offering their customers extra support during the pandemic through services such as a redesigned customer engagement process, the implementation of intelligent automation, and technology that enables them to treat customers with empathy One example is Avidia Bank’s residential and consumer loan relief program benefitting customers that have been affected by COVID-19.
The era of traditional banking products alone is over. While those products remain at the core of banking, new opportunities can—and should—be utilized by banks to meet consumer needs in a changing world.