As big banks try to win over customers with digital upgrades that resemble slick user interfaces from fintech startups, community banks are looking at new ways to keep pace with customer expectations. Many are seeing partnerships as the path to growth.

Radius Bank, a one-branch Boston-based community bank with $1.2 billion in assets, is using fintech partnerships to maximize its reach and enhance its technology stack. It’s partnered with LevelUp, Prosper and Aspiration, on financial products — a win for the startups and a means to reach new customers. It’s also a way to set itself apart from other community banks that are only using the technology back-end of core providers.

“Core providers come out with new technology, and all the community banks who use that provider are getting the same thing at the same time,” Chris Tremont, executive vice president of virtual banking at Radius Bank, told Bank Innovation. “How do you differentiate yourself?”

Some community banks consider the inability to adapt a risk to their business models. In a response to a recent American Bankers Association survey of community bankers, respondents were asked to rate risks on a scale of 1 to 8, with 8 being the most serious concern. “Securing and implementing new technology to remain competitive” and “competition from non-bank companies” were rated 4.12 and 5.6, respectively.

Others say community banks are hardly a monolith when it comes to tech adaptation. “While we certainly see some that are late to the game when it comes to offering the latest technologies, we see just as many that recognize the importance of serving their customers with a mobile-first approach to digital banking,”  said Vic Sunshine, the managing director of North American community markets at Finastra. “In many cases, we see smaller banks outpacing their larger peers because they are able to be more nimble when it comes to change.”

Kade Peterson, the chief information officer at First Interstate Bank, a community bank based in Billings, Montana, also feels fintech partnerships are a way forward. He puts community banks into three buckets: one group that “does nothing,” another that “does what the processor makes it easier to do” and a third group, which focuses on working with startups.

First Interstate has worked on digitizing its operations to the greatest extent possible, allowing its customers to pre-qualify for a mortgage online or interact with a robo-adviser. As a result, Peterson puts First Interstate in the third category, but he noted that a large proportion of community banks fall into the group that’s dependent on core processors.

According to Bob Meara, senior analyst at Celent’s banking practice, community banks still often ignore the rapidly changing financial world, akin to boat captains ignoring the depth of the ocean in their navigation efforts. Challenges they face include vendor dependency, team capacity and capability and a lack of tech expertise at the executive level, he noted. 

“If you ask a ship captain if the average depth of the ocean was a factor in his/her navigation, you’d be laughed at,” Meara said. “By the time [community banks] see these massive changes in their own client base, it may very well be too late for them to react.”