Speaker: Challenger fintechs largest threat to community banks

Challenger banks and megabanks pose the biggest threat to community banks as they continue to capture customers from Generations Z and Alpha, said Lee Wetherington, director of strategic insight at Jack Henry & Associates..Speaking Sept. 17 during the UMACHA Navigating Payments Conference in Brooklyn Center, Wetherington said banks and credit unions are too focused on the perceived threats they pose to each other. He cited the results of a recent Jack Henry survey revealing 38 percent of community banks find community-based peers and credit unions as their biggest threat. Only 13 percent listed Big Tech companies and fintechs. Adopting a humorous, interactive tone throughout his hour-long presentation, Wetherington tied the threat he sees fintechs as posing to traditional financial institutions to a famous quote from the 2007 movie, “There Will be Blood”: “Who’s drinking your milkshake?”As evidence, Wetherington cited the estimated $3 trillion in deposits that has left banks and credit unions for fintechs since 2021. Of that, $2.5 billion has gone to fintechs for investment options and $1 billion to fintechs with automated savings. Today, Chime has 14.5 million customers, two-thirds of which are Gen Z. .An even 29 percent share of Generation Z and millennials consider either a digital bank or fintech to be their primary checking account provider, compared to 22 percent of Generation X and 9 percent of Baby Boomers. Wetherington sees this trend as especially concerning for community banks as those in Gen Z are driving most new small businesses and are choosing the financial institutions they will bank with for the foreseeable future. One issue Wetherington sees is the minimal number of Gen Z IT employees at banks. Asking the audience of a few hundred bankers, credit union workers and vendors how many belong to the generation, credit union workers and vendors, only a handful stood up. Wetherington said banks can attract younger customers by handling account opening for Generation Z, and then informing them they can put their money — sometimes in separate accounts with different fintechs — into one FDIC-insured account with a better rate of return. He said banks already have sufficient data in their cores to underwrite the risk of a new account opening. Wetherington suggested banks offer an investing tool along with payment methods such as peer-to-peer or account-to-account transfers or digital wallets. The account opening process must take only a few minutes and be available digitally and in-person, he added. Banks can also allow customers to open an account immediately while funding it at a later date, Wetherington said. Wetherington called on banks to reinvent their checking and payment offerings to be customizable, flexible and designed for gig workers or solopreneurs. Community banks need strong youth engagement through digital formats to keep future account holders, he said, as Wetherington sees opportunities for banks in co-managed accounts along with helping small businesses with integrated payments and cash flow management.