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The Fintech Factor

By Ray Ruga and Francisco Geller

Community banks sit at the crosshairs of an array of forces that threaten to wipe them off the competitive map. The recent trends in fintech have the potential to become a game changer for individuals seeking loans, and especially for small and mid-sized enterprises, or SMEs. Because lending platforms created by fintech companies are highly effective and efficient on a smaller scale, it is the SME that stands to benefit most from these disruptive solutions.

Fintech leverages proprietary technologies that calculate risk on any customer and thereby circumvent much of the complexity commonly associated with the SME credit market. Divorced from traditional credit assessment techniques utilized by the majority of the financial industry, fintech companies can mitigate risks uncalculated by community banks and offer uncollateralized loans to SMEs. More important, these powerful risk-assessment technologies erode the need to understand local markets, a competitive advantage exclusive to community banks.

Fintech can lend to SMEs at lower costs. Free from the constraints of regulators, legacy technologies, geography and branch networks, fintech companies can focus all business costs toward optimizing their lending service and, ultimately, providing a better rate. The lean makeup of fintech allows them to pass savings onto the customer.

Fintech companies can also lend at the convenience of the customer. According to Gallup, 57 percent of small-business owners work six or more days a week; and 62 percent of small-business owners say they work more than 50 hours. This data indicates that most business owners, the primary clientele of the community bank, do not have much time during branch hours. Fintech offers the ability for business owners to apply for loans at their convenience, which is a very alluring feature. Additionally, applications can be completed within a few hours and do not require an in-person visit. In a dire liquidity situation, this may be reason enough for the SME to utilize a lending platform. The ability to serve customers outside of normal branch operational hours and at a fraction of the speed provides fintech with an enormous advantage over community banks.

Fintech currently holds many technological advantages over the average community bank, which lately has been buffeted by increased oversight and higher costs. Eventually, the plethora of fintech lending platforms will undermine the ability for small community banks to engage in the lending space. And although lending has become the first and most susceptible market disrupted by fintech startups, all markets and financial services face a similar onslaught. A swarm of fintech companies target nearly all banking business lines with technological advantages over the incumbent banks. Most notable about these emerging companies is their specialization in one area of the business, whether it’s lending, wealth management or payments.

Considering the traction of fintech, community banks will very soon be confronted with a choice: digital disruption or digital enhancement. Just as Tony Stark [in the movie Iron Man] built an armored suit that transformed him into a hi-tech super hero while maintaining and protecting his injured human core, so too must community banks approach a similar transformation. We fundamentally believe that the component pieces to build an “Iron Man-like” suit for banks exist and can be assembled “off-the-shelf” to help turn a traditional community bank into an agile, technologically advanced fintech company capable of competing against both the big banks and the platforms.


Editor’s Note: This is an excerpt from a white paper titled “Community Banks and the Upcoming Fintech War.” To download the white paper, visit For more information about the Fintech Americas conference, Sept. 22 & 23, visit

Ray Ruga is co-founder of Fintech Americas, a banking transformation conference. Francisco Geller is a consultant specializing in the trends and technologies transforming the industry.

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