NOVEMBER 3, 2022
8 min read
More and more financial institutions want to improve their customers’ banking experiences by making services and products that are new, easy to use, and built for the digital age.
Even though new products and services are always welcome, especially by customers, the rise of new platforms could be dangerous for regional banks that don’t have the resources to compete. Community banks shouldn’t see fintech platforms as competition, but rather as a way to stay relevant in the digital age while still meeting the financial needs of their communities.
What is Fintech Community Banking?
Community bank fintech partnerships are an alternative to the usual way of getting money from a bank. The money they lend to borrowers doesn’t come from a central bank or other traditional financial institution. Instead, it comes from people in the community.
Community banking can take many different forms. Sometimes, financial institutions like banks and credit unions are involved, but not always. In many ways, the structure and procedures of a community bank are unique to the area and culture in which it operates.
Because of this, it is important to recognize that the community has the most power in this process, especially when it comes to making decisions and managing how resources are shared. The fintech community is based on the idea that the group as a whole knows best what it needs. Influencers from outside the group have less power. That makes it important to create the minimum viable community first.
Models of Community Banking by Country
Community banking has several forms, each specific to a certain context or community.
Community banks are widespread throughout the United States. Locally owned and operated community banks in the United States adopt a more conventional approach to money lending. They keep their native ways of doing things and are better able to meet the needs of their communities.
In India, community banking looks and works in a very different way, through self-help groups (SHGs). These are groups of women between the ages of 18 and 50 who work together as a financial advisory board. Self-help groups are most common in India, but you can also find them in the south and southeast of Asia.
Members can make small savings contributions over a few months until there is enough money in the group to start lending. They can do anything they want with the money, including lending it to each other. In India, many SHGs have made connections with financial institutions to make it easier to give out microcredit.
Most self-help groups are small groups of people who have had similar experiences and views. Borrowers who are also members of a SHG get lower interest rates, more help if they have trouble paying back the loan, and more flexibility in the terms of the loan. This kind of community banking is started and run by the group, not by outsiders, as is the case with more conventional versions.
The Nigerian community banking system is called the Credit Development Division. The idea of community banking was made to close the credit gap and get the economy going again. The people who work in the division are in charge of making credit decisions based on security, down payments, loan repayment periods, interest rates, and fees.
They also work with community members and other local groups to give out lines of credit and opportunities to save, and they give out credit to customers in general. An important part of this strategy was that farmers were the main focus of the community banks. In the end, they wanted to make more products and sell them to more people. The bank puts money into the project right away, without going through anyone else.
Village Community Banks are a way for Tanzania’s government and SEDIT (Social and Economic Development Initiative of Tanzania) to help the country’s economy grow. Creating groups, figuring out how to run a bank, and building people’s skills were all important parts of coming up with this idea.
Residents of certain communities got together to form a group of 30 people who set the rules for how the community bank would work. As soon as the participants finished their training, they could apply for loans. Members can get short-term loans for the first few months and then longer-term loans for up to six months after they have shown they can run a business well.
Lastly, SEDIT taught technical skills to trainees over the course of fourteen to sixteen months. Entrepreneurship skills were taught along with how to start and run a Village Community Bank.
Examples of Fintech Who Focus on Communities
It’s no secret that the best fintech for community banks like Chime, Aspiration, and Daylight are popping up to compete with established financial institutions. But many people don’t realize that they are expanding what “community” means to include financial institutions. A lot of these new banks are focused on serving a small group of customers.
Aspiration, Ando, and Greenpenny are just a few of the fintech companies that are working to stop global warming. They make sure their products meet the needs of their customers by giving them things like debit cards made from renewable materials or repurposed plastics and cash back on purchases made from companies that are good to the environment. Surely, the future of community banking lies in an eco-friendly topic.
By focusing on the unique financial needs of their African-American customers, banks like OurBanc, Greenwood, and First Boulevard are helping to close the wealth gap between black and white people. For example, Cash Back for Buying BlackTM is a program at First Boulevard that lets customers get up to 5% cash back on debit card purchases made at certain businesses.
The future of community banks is inclusive in all senses. Daylight gives debit cards to LGBTQ people with their chosen names, even if their identities don’t match what is on file with the government. Also, Daylight helps its members get in touch with a financial coach who is an expert on LGBTQ money issues so that they can learn more about how their identities affect their finances.
Qwil, Oxygen, Moves, and Lili are just some of the fintechs that serve the banking needs of the gig economy’s workers. These workers face problems like: 1) inconsistent and/or unpredictable income; 2) the need for credit; 3) the need for health (and other) insurance; and 4) the need to follow tax rules.
Young doctors have a hard time getting loans from traditional banks because their debt-to-income ratios are so high. This is because they have a lot of school loans, even though their incomes as residents or new doctors aren’t very high. Two doctors saw a need in the medical field and started community bank partnerships with fintechs called Panacea Financial to help other medical professionals with their financial needs.
Consumers with disabilities
If a person with a disability has more than $2,000 in assets, they may lose some of their government aid. To solve this problem, Purple’s ABLE account automatically moves money from the user’s main bank account into the Purple ABLE account so the user can better manage their eligible disability expenses (such as transportation, medical, and other related costs).
What is the Future of Community Banking?
What do we call community banking and fintech? It was recently told that fintechs couldn’t use the words “bank” or “banking” in any of their advertising in California. Both at the state and federal level, it is against the law to use the word “bank” in names like “Challenger banks” and “Neobanks.”
We think it would be better to call them “community fintechs” to show that they are focused on local communities. “Community banks” are already a type of bank, so the term “community fintechs” seems to fit here.
Even though most people think that community banks and fintech only serve a small market, they have several advantages over their larger-scale competitors. Because of network effects, it costs less to get new customers, and fewer customers leave because they feel more connected to the community. Because customers are more likely to be involved and the company is the main institution, revenue per customer is also higher.
Fintech Will Go Niche
As soon as community markets are rather small, fintech communities will take on functions that aren’t related to money in order to make more income per user on average. One great advantage of fintech over traditional community banks is that fintech is utterly digital and isn’t tied to location. Thus, they’ll have a good chance of succeeding.
The neobank Revolut is already using this strategy, and it plans to offer its customers a wide range of travel-related services. The digital travel industry is mature and has well-established habits, which makes it hard for a challenger bank with a wide market like Revolut, as opposed to a community fintech, to gain momentum.
Fintech Benefits from Big Data
Adjacencies, or non-financial goods and services that meet the needs of a community, are important for the growth of community fintechs and are the future of banking. For example, a community fintech company that helps new parents could start, buy, or work with a business that sends monthly packages of kids’ clothes. In a nutshell, embedded finance and embedded fintech are driving the growth of community fintechs and fintech future.
Banks and credit unions have often failed when they’ve tried to make money in ways other than selling standard financial products because they didn’t know enough about their clients’ needs. Community fintechs will be better able to understand what non-financial goods and services their communities want if they focus on that part of the market. They will also have better technology so that they can work with partners to offer these goods and services.
Fintech Will Create Ecosystem
Fintech community banks place in the future lies together with similar institutions, service providers, and aggregators to offer new products more quickly and improve the customer experience. They will be able to better meet their customers’ needs if they adopt an ecosystem strategy that lets them take advantage of the digital banking revolution by giving their customers the speed, scale, and different products they need.
That their success depends on being able to make their services fit the needs of each customer. The community fintech should create personal relationships with their customers and use them to their advantage.
Fintech Will Change Brand Communication
Community fintechs can reinforce their message by saying that the customers own the bank. This makes the bank responsible to the customers and, if managed well, can create a virtuous loop.
Some old and new financial institutions have put digital innovation ahead of building personal, long-term client relationships which is wrong. The community fintechs should not only use scalable technologies, but also work with experienced local commercial loan brokers to quickly grow their balance sheets and make enough money to pay for their mostly fixed costs.
To Sum Up
Banks and credit unions are becoming more and more of a threat to community banking but not for community fintechs. Their digitality helps them to build a loyal customer society while remaining worldwide extended. To stay in business, local banks must go digital right now.
If you are willing to put your efforts into it, fintech software development company DashDevs will be happy to help you make a mobile fintech app for your business. Together, we can make a plan that will lead to an amazing end result.