Community banks are an underrecognized stalwart in the US banking and financial landscapes. More than 4,500-strong, community banks provide necessary services across geographies, leveraging granular local knowledge to offer a personal touch.

But community banks, like credit unions, can often struggle to keep up with larger players, which, with bigger budgets, have built out in-house tech overhauls that give them an even greater edge. With their constrained resources, community banks have still teamed up with fintech partners to solve for the following:

Local knowledge

Community banks, though significantly smaller than Wall Street counterparts, are still able to outperform national competitors in certain areas. For example, community banks hold a margin advantage by enjoying higher yields on earning assets, in part because community banks hold a higher share of longer-term assets. And these assets are of a higher quality, resulting in fewer credit losses.

This can be attributed to how knowledgeable community banks are about their surroundings—able to gauge the viability of certain loans and assets, and to liaise directly with community members to improve the standing of assets and liabilities. Fintechs building out solutions for community banks should keep this hyperlocal focus in mind, and offer space in risk-management and other operational tools for more niche and qualitative inputs.

Cutting-edge tech

Many community banks lack even basic digital services, such as mobile check deposits and online account openings. But the onset of the Covid-19 pandemic has rapidly pushed these banks—among others—to digitize.

This drive also offers the opportunity to revolutionize a bank’s core. Fintechs serving community banks may potentially see a wedge by digitizing a subset of use cases first, demonstrate the viability and convenience of their work, and then expand into helping the bank overhaul its operations and tech stack writ large.

Partnerships

Finally, community banks don’t need to do this alone. According to Jason Henrichs, Founder and CEO of Alloy Labs, a consortium for banks and credit unions, the banking crisis started by the collapse of First Republic and Silicon Valley Bank has helped big banks get even bigger, while leaving many smaller players in the lurch.

“For credit unions and banks, the realization is that if we are going to be able to solve those needs for our customers, we need to rethink our delivery model,” he said. “That means working together” such as through a consortium like Alloy Labs.

We should expect more community banks and other cornerstone institutions to partner up—both with each other and with fintech solutions moving forward.