Jack Vonder Heide jv@tbchq.com 630-789-8222

FinTech Competitors: Understanding and Responding to their Technology Edge Jack Vonder Heide ABA Mutual Community Bank Forum March 20, 2017

Perfect Storm: The 2008 Financial Crisis and Millennials Coming of Age

Post-2008 environment made it harder for consumers and small businesses to get traditional loans.

New FinTech competitors emerged to serve these borrowers.

The majority of employees in these new companies are Millennials The majority of employees in these new companies are Millennials. They are digital natives and expect online experiences to be fast, error-free and seamless. They also have shorter attention spans than previous generations.

Attention Spans

The culture and work environment at a FinTech company is completely different from a community bank.

Kabbage Culture

The creative, collaborative culture of a FinTech company enables continuous re-invention of traditional financial services.

Finova Financial

Large, legacy players are embracing FinTech

For the first time ever, big banks have a higher satisfaction rating than both community banks and credit unions. This is directly related to the big banks’ digital capabilities. J.D. Powers

So What Do Community Banks Do?

A growing number of Millennials are reaching the age where they are becoming decision makers in businesses that have been long-time community bank customers. They have digital expectations that banks must respond to if they want to retain these relationships.

The 2016 Millennial Money Mindset Report, released by iQuantifi, stated that nearly 42 percent of millennials want to manage their bank relationship exclusively online.

Most community banks do not have large technical staffs.

Key Action Items

1. Increase Board Technology Focus Director expertise Addressing knowledge gaps Board-level technology committee Frequency of technology presentations and discussions Millennial employee exposure

2. Get closer to your core provider Understand what you already have. Establish executive-level relationships. Know the product pipeline.

Fiserv Bank Secured Social Funding

3. Set a Strategy for FinTech Competition Ignore Compete Partner (referrals, investment, etc.)

FinTech Company Advantages: Cutting-edge technology that banks don’t have (i.e. algorithms to read and identify types of purchases to create a monthly budget) Rich analytics Many data points No legacy system burdens Low cost of operations Ability to move quickly

Banks Advantages: The exclusive source for many types of financial information about customers. The repository for customer funds. Customer relationships Low cost of capital

4. Vendor Vetting Understand which technology vendors are endorsed by your state and national associations.

5. Think National, Act Local Require technical staff to attend state and national conferences. Read obsessively. Pick up the phone. Include the research function in job descriptions.

6. Millennial Advisory Board Bank employees Children of long-time customers Young professionals in the community

7. Promote Your Card Default

Questions?

Jack Vonder Heide jv@tbchq.com 630-789-8222