The increasingly popular trend of digital banking was pushed forward as a necessity during 2020 and has become the preferred banking method by many. In May, BAI research found that 43% of surveyed consumers did all of their banking digitally and 84% said they planned to use digital the same amount even after the pandemic. Standard banking is not the only area that needed a digital upgrade.
As challenger banks continue to provide niche banking options for consumers, the pressure for community financial institutions to stay competitive is becoming more pressing. The pilgrimage to digital banking and the need for niche banking solutions go hand-in-hand as consumers expect the leverage of new technology and innovation to be the status quo at their bank.
The good news is there are options for community financial institutions (FIs) to implement niche banking successfully and quickly. Modular banking enables FIs to add services on top of their existing core, allowing for the flexibility to grow.
Many customers have separate accounts with challenger/neo banks and fintech’s for their niche banking needs. It would be convenient and helpful for them to have all their needs met by their current banking provider. As niche banking continues to become more popular, the amount of niche options is increasing. Here are three trending niche services that community financial institutions should add to their road map right now.
Small And Medium Business Lending
In 2020, many small businesses that weren’t having luck receiving loans from traditional FIs looked to fintechs to provide them with the funding they needed, and as many companies quickly sought digital services to support a remote team, fintech’s were able to meet their changing needs. Fintech innovative support hasn’t slowed down. In July, Square announced its small-business banking service that not only provides savings services but also integrates with its payroll tool and allows for the loan process to be handled through one account.
Adding small-business lending to the road map provides a service to a key group of customers: small businesses. Often these businesses are in the same community as the FI and would prefer to bank locally. Providing these local businesses with lending enables them to be successful and to benefit the shared community.
Most challenger bank-style apps have so far focused primarily on consumer needs. But business owners also demand the same convenience for their banking services. A digital platform for credit cards, digital payments, business loans, and mobile-based accounts receivable and payable services are all features that innovative community banks can use to grow their business accounts.
Buy Now, Pay Later
With the power to buy high ticket items and pay them off with low or no interest over the course of several months, the buy now, pay later (BNPL) trend is taking off among millennials and Gen Z. Square purchased Afterpay in a $29 billion all-stock deal, while Apple partnered with Goldman Sachs Group Inc. to provide its own BNPL service.
It is important to create new ways to implement trending services. How can you offer something different or add a new aspect to the emerging trend? For banks, BNPL initially looked like a threat. Nonbanks were encroaching on the territory of credit cards. However, growth for BNPL services that use the “Pay in 4” model has come primarily from consumers with lower credit scores. For banks, this presents an opportunity to leverage the transaction data that already exists in their customer bases to identify where they can grow future revenue. For example, banks could offer BNPL offerings to certain segments that might not be a target for traditional lending or credit products with the goal of “graduating” those customers to other products or services.
One of the biggest trends of 2021, crypto can sometimes seem scary to tackle as a community financial institution. While some individuals might not know the first thing about the newly popular form of currency, others are waiting for their FI to provide a product that allows them to integrate cryptocurrency into their finances.
The popularity of cryptocurrency has grown tremendously in the past year hitting a total market cap of $2.6 trillion in May. As of this writing, the crypto market is at roughly $2.4 trillion.
Now is the time to provide cryptocurrency solutions. As a community FI, the focus always has been and always will be on enabling the customer. This is an opportunity to lead customers into this new frontier.
By providing niche services to the customer, community financial institutions are reinforcing the practice that attracts so many: personalized service from professionals who live and work in the same community. By ignoring the changing trends in banking, FIs are missing a huge opportunity to serve customers while also financially benefiting themselves.