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Two community banks embrace digitization trend with new products, investments COURTESY PHOTOS

Two community banks embrace digitization trend with new products, investments

BY Sunday, August 15, 2021 05:35pm

Two local community banks are following the industry’s deeper push into digital banking that has accelerated since the onset of the COVID-19 pandemic last year.

Independent Bank launched a new app called ONE Wallet for consumers and business clients, while ChoiceOne Financial Services Inc. invested in venture capital fund JAM FINTOP Banktech L.P. that invests in financial technology startups, or fintechs.

Through the $250,000 commitment made to JAM FINTOP Banktech, the Sparta-based ChoiceOne looks to keep up on emerging financial technologies as digital banking further evolves, said ChoiceOne Chief Operating Officer Adom Greenland.

JAM FINTOP Banktech, a $150 million investment fund, partners with community banks around the U.S. to invest in fintechs. The fund presently has 67 partner community banks nationwide that are limited partners.

As an investor, ChoiceOne can get early looks at the technologies that JAM FINTOP Banktech backs and become involved in vetting innovations at their early stages that fintechs are developing for the marketplace.

The investment represents a long-term play in ChoiceOne’s digital strategy that “gives us a step ahead of our competitors and lets us keep pace” on innovations, said Greenland, who serves on JAM FINTOP Banktech’s innovation committee.

“Something like this allows us to have another foot in the door with some exciting financial technology companies, and we get connected with other like-minded banks around the country,” he said. “We’re not necessarily looking for something specific, but we know it when we see it, and you have to open a lot of doors before you find the right fit for your bank and your customer base. We would have looks that no one else will have because of our relationship, and you can’t find these companies unless you’re out looking for them. You have to get in that space.”

Greenland added that the investment is a way for banks like ChoiceOne to “get exposure to companies all over the country that are doing some really cool things in financial technology that we, frankly, wouldn’t have exposure to otherwise.”

The early-stage fintechs that the venture capital fund backs are typically past the proof-of-concept stage, have innovations that are in use at a handful of banks, and need help “scaling or refining their product,” Greenland said.

ChoiceOne has previously partnered with early-stage fintechs, including Detroit-based Autobooks Inc. that provides small-business invoicing, payments and an accounting platform for internet banking. ChoiceOne added Autobooks when it upgraded its online and mobile banking platform in mid 2020.

‘We had to do something’

As ChoiceOne scouts for the next fintech company through its commitment this past spring to JAM FINTOP Banktech, Ionia-based Independent Bank in late May launched an entirely new digital banking platform.

Independent Bank’s ONE Wallet app for online and mobile banking provides business clients more features than previously offered, including faster bill payments and money transfers, real-time postings for debit and credit transactions, and easier ways to open new accounts, apply for loans and access credit cards.

An enhanced version of the app, ONE Wallet+, offers a personal finance management and budgeting tool that allows users to track their spending and can link with apps for their credit cards, retirement accounts and financial advisers.

ONE Wallet+ “enables our customers to monitor all their finances in one location and provides budgeting and spending analytical tools,” President and CEO Brad Kessel said in a recent conference call with analysts to discuss quarterly results. ONE Wallet+ has experienced a “very strong adoption rate,” Kessel added.

“As we move forward during the second half of 2021, we will continue this digital transformation journey implementing numerous day-two elements,” he said.

Russ Daniel, Independent Bank’s executive vice president for retail banking operations, said the digital platform offers users the next generation of mobile and digital banking with more features, better functionality and “one-stop shopping for their financial needs.”

Independent Bank previously had a legacy software system and digital banking platform “that we didn’t think was keeping up with the industry,” Daniel said. 

The bank switched to an entirely new digital banking platform it bought from Brookfield, Wis.-based financial service technology company Fiserv Inc. that was customized for Independent, he said.

The ONE Wallet platform has the flexibility for ongoing updates, allowing the bank to readily keep up with new digital banking technologies and capabilities to meet market and consumer demands.

“We want to be able to take advantage of fintech development and apply that more quickly to our customer base to help us continue to be more relevant,” Daniel said. “We had to do something to be more competitive, but it was also about setting up a platform so we can be more nimble and quicker as we go forward and find the next solution for our customers.”

‘Catalyst for digitization’

The timing of Independent Bank’s move to ONE Wallet and switching digital banking platforms was coincidental and came prior to the COVID-19 pandemic, although “we were really happy we were on that path” when the pandemic hit and generated a surge in mobile and online banking, Daniel said.

“We only wish we could have done it quicker,” he said.

The moves by ChoiceOne and Independent Bank reflect an ongoing, broader push across the industry to evolve digital banking products as consumers migrate to mobile and online platforms.

The COVID-19 pandemic accelerated the trend when bank offices were closed last year for prolonged periods, pushing customers to digital services to do their banking.

A December 2020 Deloitte report noted that, up until the pandemic, “the promise of digital banking was never fully realized, largely due to customer reluctance and/or a lack of attractive digital solutions. But the pandemic turbocharged digital adoption across products and demographic segments.”

“It is now abundantly clear that COVID-19 has acted as a catalyst for digitization. In addition to accelerating digital adoption, the crisis has also served as a litmus test for banks’ digital infrastructure,” according to Deloitte’s 2021 banking outlook. “While institutions that made strategic investments in technology came out stronger, laggards may still be able to leapfrog competitors if they take swift action to accelerate tech modernization.”

Increasing adoption

Nearly half of the 200 industry leaders that Deloitte interviewed for the report said their bank planned to accelerate digital transformation of business services.

An annual technology survey by online trade publication Bank Director found that half of responding executives in 2020 indicated “the digital channel is most important to their bank’s growth.” 

Virtually every respondent among the 157 independent directors and senior bank executives surveyed reported an increase in the adoption and use of digital services because of the pandemic. Nearly three-quarters of respondents said their bank enhanced or planned to enhance mobile and online banking capabilities.

Amid the shift to digital banking, though, just 13 percent of the respondents to the Bank Director survey conducted in June and July 2020 said their small business lending process is fully digital. Fifty-five percent of respondents reported that commercial clients could not apply for a loan digitally. Nearly one-third of respondents said their small business loan process was partially digital, according to the Bank Director survey.

Nearly four in 10 respondents said improving online and mobile offerings ranked among their top three objectives for their bank’s technology strategy, and nearly two-thirds indicated modernizing digital banking applications was part of their strategy.

To that end, West Michigan market leader Fifth Third Bancorp this month completed the acquisition of Provide, a San Francisco-based fintech firm with a digital platform that specializes in medical practices. The acquisition “dovetails perfectly with our existing strategic focus on digital enablement,” Fifth Third Chairman and CEO Greg Carmichael said in a July call with analysts to discuss second quarter results.

Cincinnati-based Fifth Third previously invested in Provide, which has originated more than $1 billion in loans for medical practices since launching in 2013. Provide approves and closes loans “about 70 percent faster than a typical lending process would in that market,” according to Fifth Third President Tim Spence.

At PNC Bank, which ranks among the market leaders in West Michigan, Chairman, President and CEO Bill Demchak told investors in July that the bank is “80 percent of the way along where we would like to be in terms of what I would just call a modern platform across everything.”

“I think what happens down the road with technology is much more about client-facing technology and the ability to compete effectively in the new ecosystem of fintechs and where payments are going and all of that stuff,” Demchak said. “We’re going to invest hard into that. We have the core technology behind us to allow us to play in that space, but that’s where the fight is going to be. And I think that game is just getting started.”

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