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Bank-Model Partnerships: The New Banking Model for 2020 and Beyond

According to the FDIC, the most important factor contributing to the earnings gap between community and non-community banks is the ability to generate non-interest income from “activities that are typically not part of the traditional community banking business model.”  Expanding non-interest income businesses needs to be a greater priority for most smaller banks.  A new report from Deloitte on the future of banking predicts the development of different business models for financial institutions over the next ten years, noting that as consumers become more sophisticated and financial services become more commoditized and disintermediated, consumers increasingly will act as competitors to financial institutions. New platforms will allow them to service their own financial needs.  Overall, Deloitte concludes that the banking marketplace in 2030 will be highly fluid and interdependent, requiring “innovative business models and alliance ecosystems.”

Most community banks lack the financial resources, management experience, and compliance staff necessary to take advantage of most of the opportunities created by these changes in the banking industry.  Most community banks are not well-positioned to compete with larger banks or fintech companies by creating and taking advantage of economies of scale or seeking to capture the heart and mind of the millennial demographic.  They compete by offering better customer service and paying greater attention to small business customers. 

On the other hand, there are a handful of banks – many of them very small – that have developed niche business models by partnering with fintech companies, including through bank model partnerships that enable non-bank lenders to originate loans through the bank and avoid having to comply with usury and licensing laws in every state in which they operate.  These partnerships enable the bank to reach market segments which would otherwise be impractical or uneconomic for them to engage in.   This collaboration can bring exponential growth in deposits, loans, and non-interest income through innovative partnerships while driving customer adoption and customer engagement.  We recently presented on this topic at the West Virginia Bankers Association and Ohio Bankers League Joint Convention, discussing the key issues and opportunities for banks in structuring partnerships with fintech companies.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XI, Number 223
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About this Author

Neil E. Grayson Finance Attorney Nelson Mullins South Carolina
Partner

Neil heads the firm's financial institutions corporate and regulatory practice group, representing primarily financial institutions, fintech companies, and alternative financial services companies. Neil handles securities offerings, M&A, corporate governance matters, and regulatory matters. He is particularly involved in the development of innovative financial products, including income share agreements and pay–for–success programs.

Neil has been involved in more than 300 securities offerings or M&A transactions, ranging in size from...

864-373-2235
Brad Rustin Finance Attorney Nelson Mullins South Carolina
Partner

Brad chairs the firm’s Financial Services Regulatory Practice. His career began as a litigator focusing on consumer financial services litigation and defense of regulatory claims against chartered and non-chartered financial institutions, finance entities, and money services business. Following in the wake of the fiscal crisis, he began working with financial institutions, state-licensed lenders, money transmitters, non-traditional lenders, check cashers, and mortgage brokers on issues of regulatory compliance. As the regulatory environment facing financial institutions...

864-373-2320
Randall L. Saunders Financing Attorney Nelson Mullins Huntington
Partner

In addition to chairing the tax lien and litigation group at Nelson Mullins, his practice focuses on banking, financial services, business, taxation, and real estate matters. He routinely handles litigation, administrative, and transactional matters. While his practice originates in the heart of Appalachia, he routinely handles matters in jurisdictions across the country. Mr. Saunders also currently serves as the firm's Pro Bono chair.

304-526-3507
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