71% of digital transformation decision-makers said their customers seek capabilities that can’t be built into existing infrastructures
NovoPayment, in collaboration with Forrester Consulting, released a new research report that reveals what’s slowing digitization efforts at smaller banks and credit unions, and signals a rise in leaders embracing banking-as-a-service (BaaS) partnerships to level the playing field against larger financial institutions.
The report, “The 2023 Nimble Bank Playbook,” includes findings from a survey of over 200 digital transformation decision-makers at local and regional banks and credit unions with less than $10 billion assets under management. While the size of smaller financial institutions has historically afforded them a reputation of delivering superior customer service and higher engagement, they have lost ground to larger banks—both in the battle for winning customers and attracting a shrinking talent pool—partly due to their less robust digital offerings.
The research shows that leaders at smaller banks and credit unions are under more pressure than ever to catch up, with 87% stating they’ve seen an increase in demand for digital services in the last 24 months, and 80% expressing concern that their clients will move to larger banks. What’s more, 71% noted that their customers seek capabilities that can’t be built into existing infrastructures, which helps explain why partnerships with BaaS platform providers are on the rise.
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Key Findings: What’s Hindering Digital Initiatives?
People, process, and technology challenges are slowing the progress of digital transformation efforts at small banks and credit unions.
- 73% note their organizations do not have enough staff to support robust, CX-driven digital strategy.
- 45% say that a growing complex IT environment is preventing them from implementing BaaS solutions.
- 41% are facing regulatory and compliance burdens when advancing digital initiatives for their organizations.
But leaders are embracing BaaS partnerships to overcome these challenges and level the playing field against large FIs. Closing internal skills gaps, cost predictability, and a proven security record are important in BaaS partner selection.
- 88% believe filling internal skills gaps is important to a BaaS partnership.
- 87% say that partnerships play an important role in filling gaps in digital efforts.
- 80% are exploring or already consuming third-party services and delivering them via APIs.
- 67% use BaaS to embed their banking services in other companies’ product offerings.
Key Findings: Why & How Are Leaders Embracing BaaS Partnerships?
Decision-makers and leaders in smaller banks and credit unions believe they are better positioned to leverage BaaS vs large FIs.
- 90% of decision-makers believe that their organization’s smaller size enables them to build and implement changes to their digital interfaces more quickly than larger national and global banks.
- 86% believe that the smaller size of their organization allows for more agility in the face of digital transformation.
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They plan to partner with BaaS providers to implement the following next-gen digital initiatives:
- 51% plan to pursue integration with additional third-party providers.
- 50% plan to implement online account opening.
- 49% plan to implement credit decisioning.
- 49% plan to implement the creation of greenfield banks.
“Strategic partnerships are key to creating efficiencies in our work, attracting new customers and better meeting their needs,” said Josh Williams, EVP, Chief Banking Officer and Head of Partnerships at Seattle Bank, a digitally-driven boutique bank. “To make partnerships effective, it’s essential that smaller banks and credit unions develop an understanding of the tech ecosystem and build their capacity to identify, evaluate and ultimately onboard different partners to bring the solutions required to stay competitive.”
“In today’s rapidly changing financial services landscape, customers are seeking capabilities that can’t be built into existing infrastructures. This research underscores how mission-critical digital initiatives are for smaller banks and credit unions, and where BaaS partners can help bridge the gap between their own digital capabilities and those of bigger banks,” said Rama Iturarte, NovoPayment’s Chief Technology Officer. “Fortunately, smaller banks and credit unions are more agile, and stand to gain from BaaS partnerships that give them the infrastructure they need to meet customers’ demands and stay competitive in the market.”
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