Adam Turmakhan is the CEO and COO of TurmaFinTech, a Florida-based fintech startup that offers bespoke customer data platforms for community banks and credit unions across the US.
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The US’s open banking saga has been raging on for the last couple of months, and fintech providers have been among the loudest voices of all. They were incensed that they might be shut off from the customer data they rely on, but honestly, I can’t help but find this completely hypocritical.
They've been doing the very same to community banks for years.
For a while now, some fintechs have been winning contracts with small financial institutions, embedding themselves deep into these banks’ systems and building platforms that lock any other provider, and the banks themselves, out. For our community banking sector, this has been absolutely catastrophic – and it’s high time these providers were called out.
But, pushing aside the ethics of it all, the most dire consequence of these actions is that they have prevented community banks from digitalizing. And more importantly, doing so on their own terms.
Data is vital for community banks to gain a deeper understanding of their customers’ needs and behaviors. It is the key to building close relationships with consumers in the digital age, opening up upselling opportunities and shoring up risk processes – but by cutting off access, some fintechs have robbed community banks of these growth opportunities.
And the damage doesn't stop there. Digitalization is not a one-size-fits-all process – and malpractice like this is stopping community banks from building the tailored tech stacks they desperately need. One of the best things about these community providers is that they bring color to the US’s banking ecosystem – they are incredibly diverse, and that applies to their technological needs, too.
For some, cost efficiency will be the priority, while others will be searching for more expensive, advanced data platforms. Some will implement technology that helps them better understand their customer bases, whereas others will be looking to increase their commercial loan books.
Put simply, community banks need the freedom to layer different platforms from different providers – and shift if they find a given platform isn’t working for them. Abusive practices from the fintech sector that, in short, force community banks to continue to roll over pricey contracts don’t quite fit that bill.
There’s no doubt this is holding community banks back and, unfortunately, they appear to be a captive audience for the fintechs that employ these damaging tactics. Over 90% of community banks want to initiate digital transformations, but don’t necessarily know how. Equally, less than 20% of these institutions feel they have expertise in data analytics. Considering their lack of technological know-how, it’s no surprise that these institutions have been like lambs to the slaughter.
The frustrating thing is that I know just how much of a positive difference fintech partners can make at small banks. When they work hand in hand and implement platforms that seamlessly integrate into community banks’ systems, they can help banks realize so much potential.
I also know just how business-critical productive partnerships with fintechs are for these smaller institutions. They can’t hire the hundreds-strong data science teams their competitors can, so they have to rely on partnerships – especially when the sector’s powerhouses are becoming more and more dominant and continue to allocate billions to their annual tech budgets.
The vast majority of the fintech industry was very quick to highlight that axing open banking rules and curtailing their access to customer data could put some providers out of business – and, don’t get me wrong, I agree that would be a terrible outcome. Abolishing the regulations would be a step in the wrong direction, but that doesn’t change the fact that their fury revealed a fundamental hypocrisy.
Yes, customer data is the lifeblood of fintech providers, but if there’s one thing I know to be true, it’s that it’s also the fuel for community banks’ digitalization. Access to it must never be cut off – and if the fintech sector doesn’t leave its damaging ways behind, I fear it could stamp out small banks’ digital development for good.
