One bank from New Hampshire, one from Massachusetts, one from Connecticut and two from New Jersey teamed up to help develop a fintech-based solution for often-manually-intensive escrow services.
When Burlington-based ZSuite Technologies heard that Bank of New Hampshire could not find a technology solution to help the community bank provide products and services to municipalities, the fintech’s CEO recognized a common theme. ZSuite had heard from several banks looking for a similar solution to use with various customers, from lawyers and property managers to unions and funeral homes.
“There was this common core around all of the needs that were being uncovered that bankers were telling us, ‘There’s nothing out there that helps us with this,’” CEO Nathan Baumeister said. “You only have to hear that so many times.… If this is something we can help with and these banks need it, then that seems like a good thing for us to focus on.”
But rather than starting to build the product in question – a subaccounting solution for escrow deposits – Baumeister brought several banks together to learn what they all wanted the product to look like and then kept the group together to develop it.
This collaborative approach to innovation and technology gives banks and fintechs opportunities not just to build products but to learn from one another throughout the process. With community banks facing changing customer demands and expectations around technology, banks can look to partnerships for sharing resources, costs and solutions.
Team Strategy Lowers Costs
Partnerships for building technology solutions in the financial services industry are not new. The credit union industry has for years used credit union service organizations (CUSOs) on shared technology.
Big banks have taken a shared approach to technology as well, said Jason Henrichs, CEO of Alloy Labs Alliance, a nationwide consortium of community banks working in partnership with the American Bankers Association.
Bankers are often surprised, Henrichs said, when he asks them to think about how big banks have long worked together on solutions such as The Clearing House and Early Warning Services.
“Isn’t that ironic that the big banks that have all the resources were the ones that figured out partnering together on some of these things was the right way to approach it?” Henrichs said.
Community banks looking for new technology often search for the best vendor, Henrichs said, but should instead define the problem that needs to be solved and then let that problem drive the technology partnership. He added that banks should put equal importance on how they adapt the technology and how the technology evolves.
Approaching this innovation strategy through a consortium helps banks to have input in products being developed while also learn from how other banks use technology, Henrichs said.
“Partnering with a group, [fintechs] can get a lot further a lot faster, and for the banks it’s a way for them to leverage each other’s strengths to what they’re doing,” Henrichs said. “The problem isn’t finding startups; the problem is figuring out the right operating model once [banks find] them.”
Working in a collaborative group also means that individual banks do not have to put the effort into looking at every new fintech, said Julieann Thurlow, president and CEO of Reading Cooperative Bank, one of about 50 banks participating in Alloy Labs Alliance.
With community banks facing limited human and financial resources, Thurlow said, banks can take advantage of being part of a group to drive down the costs of a solution, share development costs and share notes or research. This approach lets banks focus on their own priorities while still learning from those working on other projects. She added that consortium members decide as a group what projects to work on and then individual members can decide to take an active role or wait to hear the group’s recommendations.
The consortium was set up to limit the number of banks that compete in the same market, Thurlow said, helping to build trust.
“The more you start sharing and developing a trusted group where you are like–minded as far as innovation is concerned, you start sharing about other things,” Thurlow said.
Strategic Incentive Behind Product
The ZSuite partnership includes Bank of New Hampshire, Connecticut-based Patriot Bank, two New Jersey community banks and Arlington-based Leader Bank, which spun out ZSuite into an independent company in 2019.
The product being developed, ZEscrow, will give community banks a subaccounting system to support their clients escrow accounts. Leader Bank President Jay Tuli said his bank has a strategic initiative to enter municipal and other markets that involve escrow accounts.
Tuli said that in addition to having a say in the product’s development, value also comes from learning how the other banks plan to use the product with their customers and bounce ideas off each other in a collaborative way, an opportunity he said was exciting but not common.
Diane McLaughlin
He added that buying technology from vendors doesn’t give banks that collaborative opportunity to talk with other clients using the product. He said it was fun to see banks band together to build a product.
“It’s an interesting time right now for community banks because now more than ever community banks are much more open to the idea of embracing technology, and even taking a more active hand in building the technology,” Tuli said. “COVID has certainly accelerated that.”
The six organizations meet monthly to discuss the progress, and Baumeister said having a partnership with the banks lets the fintech ask questions instead of trying to figure out the product on its own.
“I think that’s a huge advantage for us from a development perspective,” Baumeister said. “Because we can listen very closely and use their experience so that they can get the best product possible.”
