Small and medium-sized financial institutions (FIs)—those with less than $100 billion in assets—cannot hope to compete directly with the quality of digital user experience (UX) offered by the largest US banks due to their smaller technology budgets. According to 2020 eMarketer data, the nine largest US banks accounted for 60% of all banks’ IT/technology spending as of May 2020.
With the advent of the coronavirus pandemic, eventually forcing banks of all sizes to scale back personal services and shift to digital, financial institutions are under intense pressure to keep pace with the demands of digitization. Despite the hurdles small financial institutions can face in digital transformation, there are many advantages and strategies that can be used to achieve success and maintain their competitive edge in this field.
How can smaller financial institutions use digitization to their advantage?
While small and medium-sized financial institutions may not have the financial resources at their disposal as much as their larger counterparts, they tend to have higher levels of consumer confidence than some of the largest US banks. This confidence may compensate for some of their belated innovations. Additionally, their deep relationships with customers can allow them to launch more personalized, meticulous products.
Smaller financial institutions can also offer more competitive interest rates on financial products from large and giant banks, which can be combined with convenient application processes to deepen customer loyalty.
Innovation strategies for small and medium-sized financial institutions
Despite the financial and digital barriers that small and medium-sized financial institutions face, there are key strategies they can take advantage of. Here are some of the strategies that inside information identifies in the Small and Medium-sized Financial Institutions Strategies Report:
- partner: Working with a fintech or software vendor to either take advantage of their existing products or help shape the design of new products is often the best option for smaller financial institutions due to their cost efficiencies and faster time to market.
- to construct: Developing digital products and services in-house with no or minimal input from vendors is usually prohibitive for smaller financial institutions, but some are adapting this approach by heavily customizing off-the-shelf products.
- exchange: Participating in consortia to pool resources and share best practices is ideal for smaller financial institutions as it allows them to achieve more together in terms of digital user experiences than they can independently.
Do you want to know more?
The Innovation Strategies for Small and Medium-sized Financial Institutions report from Insider Intelligence discusses the unique challenges and benefits that small and medium-sized financial institutions face when it comes to digital innovation; Identifies innovation strategies open to them, their advantages and disadvantages; It gives real-world examples of these strategies being implemented.
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