Even in 2024, it is still relatively rare to see the terms “innovation” and “community FI” paired together. Community institutions have long provided high-quality personal and business banking for local and regional customers, but digital innovation has been a long time coming. Many community FIs still struggle to provide the next-gen digital capabilities customers are asking for, especially around faster payments, cash management, and modernized digital banking. This creates issues around customer retention as larger FIs continue to scale their digital offerings, widening the capability gap between them and smaller community institutions.
It’s not just about current customers, either. Improved digital capabilities help community FIs broaden their customer base, especially among nonlocal customers. Moreover, the significant potential around banking-as-a-service (BaaS) offerings can bolster an FI’s status as a financial technology provider.
Community FIs that can improve digital capabilities will see positive results from a market perspective over the coming years. Many are early on their technology journeys, but several institutions have done good work in this area. The following sections take a close look at four community FIs who have taken the reins on digital innovation.
IncredibleBank
IncredibleBank is a prime example of a community bank that maintains close connections with its client base without neglecting the digital innovation piece. The Wausau, Wisconsin-based community bank was originally founded as River Valley Bank in 1967, serving areas in northern Michigan and Wisconsin, as well as a branch in Florida.
IncredibleBank touts the high levels of customer service that benefit a long-standing community bank, but it has not ignored the need to develop its digital capabilities. These include digital wallets for mobile payments, access to faster payment solutions such as RTP, same-day ACH, and Zelle, and account aggregation to allow integration with external bank accounts. IncredibleBank also maintains fintech integrations for deposit control (IntraFI) and cash management (AutoBooks).
nbkc
nbkc is a community FI with branches in the Kansas City area. It is equally known for its presence as an online bank that maintains partnerships with fintech players like Acorns, Betterment, and Empower. Aside from a range of digital banking and payment capabilities, nbkc functions as a BaaS provider, offering FDIC-insured checking, savings, and for-the-benefit-of accounts, as well as white-label Visa credit cards, to third-party fintechs.
Thread Bank
Rogersville, Tennessee-based Thread Bank was formed in 2021 out of Civis Bank, which has served areas in Eastern Tennessee since 1906. Thread Bank maintains close ties with its Eastern Tennessee roots. Still, its revitalization in 2021 led it to become a full-scale digital bank with a wide range of table-stakes banking, payment, and wealth management tools.
Thread Bank also functions as a BaaS provider, offering embedded banking, payments, and lending capabilities to fintechs and third-party platforms.
Note: Thread Bank was issued a consent order from the FDIC on May 21st, which was made publicly available on June 28th in the FDIC’s monthly enforcement action update. The consent order focused on the bank’s BaaS program, among other areas. Several other FIs have received similar orders in the past few years, pointing to a continued need for banks and FIs to meet the BaaS opportunity with proper compliance and third-party risk management practices.
Horicon Bank
While not a BaaS provider, Horicon Bank represents the community FI that deploys digital capabilities in order to strengthen relationships with the community it serves. The Horicon, Wisconsin-based bank facilitates industry-standard banking capabilities for commercial and retail customers, along with robust treasury management and commercial payments solutions.
Highlights include digital wallets, integrated receivables with automated matches between transactions and customer invoices, and merchant services via partnership with Heartland, a subsidiary of fintech Global Payments.
Why This Matters
Technology and customer demands are rapidly changing, whether they come from individuals or businesses. Community FIs will have to change with them to retain business, build new relationships, and compete with larger FIs.
Community FIs that are truly digitally enabled will embrace things like faster payments, automated cash management, and fintech integrations. These innovative community FIs will then tailor these technologies to match demands from their geographical community base but can also choose to focus on the BaaS opportunity, which is significant. Community FIs that can successfully rise to these challenges are poised for success as community lynchpins and financial technology leaders for the future.
If you are a community FI, such as a bank or credit union, looking to enhance digital solutions for your customers, Datos Insights can help. Datos offers bespoke consulting, custom research, and strategic road-mapping for business clients looking to build out their financial technology capabilities. For more information on community FI innovation or other commercial banking and payment inquiries, please reach out to me at [email protected] or contact Practice Director Erika Baumann at [email protected].
