Garnet Capital Advisors Blog

EXCERPT: Heightened competition among fintechs and narrower margins as a result of low interest rates are prompting banks to focus their attention on fee income and liquidity.

Banks are increasingly focusing on programs to compete with fintechs.

The continued low interest rate environment coupled with heightened competition in the banking industry is prompting small banks and credit unions to refocus their attention in other areas, including income and liquidity.

Banks Falling Behind in Fee Income and Liquidity

According to recent surveys, liquidity and deposits appear to be some of the more pressing concerns in the industry. With more modern mobile payment services available, such as Venmo, Apple Pay, and Square Cash available to consumers, financial institutions are experiencing an increasing loss of funds.

Banks in the $10 to $50 billion asset range are falling behind in fee income

Consumers are no longer keeping stashes of funds in their checking accounts for very long before moving their money into other channels, which is making it more difficult for banks to grow deposits. This is particularly true for millennials and Gen Zers (those who were born in the mid-1990s to the early 2000s) who tend to have relationships with different types of financial institutions.

While they may hold a primary relationship with one bank, consumers may also hold secondary relationships with other financial products and platforms. As such, community banks are shifting their focus and are increasingly embracing digital platforms. Nashville-based InsBank, for instance, is in the midst of coming up with a digital deposit platform in an effort to remain competitive with online banks and fintech firms.

Rutherford, NJ-based Blue Foundry Bank is also making it a priority to collect deposits from the Gen Z demographic. The bank now develops products that are more geared towards younger consumers, including AxisChecking, which offers unlimited ATM withdrawals and no monthly fees and can be opened with just $1.

Smaller banks are developing solutions to compete with fintech apps.

Banks Must Cater to Younger Demographics

While developing relationships with millennials and others who prefer digital platforms is important, banks are beginning to understand that they'll likely need to adopt virtual channels to entice consumers. At the end of the day, banks that can successfully win over younger demographics and adapt to changing environments will come out on top.

More and more banks are accepting the idea that they are no longer the sole financial service provider for their client base, as an increasing number of consumers are using multiple banking channels to handle their money. The definition of a deposit relationship is changing among banks and their clients who are adopting other types of accounts to bring in deposits, even though they may not necessarily be relationship products.

It will certainly take some work for banks to gain traction on gaining more deposits, particularly from younger demographics. But banks may need to focus more on attracting such deposits and accepting the idea that their point of deposit may not be the sole place where funds are left. That said, there still may be an opportunity to turn such deposits into relationships and into loans among younger clients, particularly as their banking and lending needs change.

Banks of any size would be well-advised to work with a seasoned loan sale advisor with plenty of experience establishing relationships with various partners, including fintechs, to help keep banks more competitive. Garnet can also help banks purchase higher-quality, shorter-duration loan assets, and Garnet Capital has such portfolios available.

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