The Niche Bank Opportunity
Space for growth exists between traditional and challenger banking models.
There are many ways to structure digital bank capabilities for growth while maintaining operational efficiency — a stand-alone innovation lab, a distinct digital line of business or integrating innovation into all new and existing operations.
But as banks compete to capture the 7.1 million unbanked U.S. households, it’s no surprise they’ve ranked business building as a top-three priority. In fact, a recent McKinsey survey found 65 percent of financial services saw revenue growth above that of their competitors as they extended their product offerings to engage new customers.
Challengers do not own digital; there is room for traditional banks in these spaces.
While it is true that challenger startups are free from the constraints of legacy tech stacks, there is nothing that inherently prevents traditional banks from finding faster paths to digital transformation.
There are many more technology partners to work with beyond the big three core providers, and APIs have opened possibilities to test and learn without the burden of core conversions and large, fixed-project expenses.
Besides focusing on large-scale technology investments, banks and credit unions can target integrated technology roadmaps — including Banking-as-a-Service solutions paired with holistic business strategies.
Finding the right partner is essential. Vendors often waste time trying to force a bank’s needs and pain points into their solutions rather than taking an honest evaluation of what will truly add value and move forward. For banks to enable new expectations of speed and provide excellent service to a specific segment, the tenets of the vendor relationship must fundamentally change to become a partnership.
Vendors become partners when they share risk and take accountability for outcomes. In doing so, partners focus on the functions that actually drive growth and efficiency rather than cramming in ineffective features or skating by with a minimum viable product.
The definition of what makes a community has evolved from a geographic term to an identity or affinity to a common cause, brand or goal.
Digital alone is not a growth strategy.
As the market becomes more saturated with banks offering digitized processes and feature-heavy apps, banks on an intentional, innovative growth path will thrive by focusing on an underserved niche with digital solutions that cater directly to them.
McKinsey found the same: “Banks should aim not only to expand their own core offerings but also to create a unique combination of products and functionality that will disrupt the market.”
“The strategic common denominator should be a laser-like focus on creating a differentiated proposition that solves problems. This will achieve the vital goal of making life easier for customers, so it is more likely to achieve a durable advantage in the marketplace.”
For example, gig workers like Uber drivers and Instacart shoppers have unique cash-management needs that look different than the needs of people with traditional employment. There is a valuable opportunity for banks to utilize API connections to build tools that help gig workers manage their cash flow, evaluate their financial wellness, track business expenses and determine what they need to stay profitable.
Both challengers and some traditional financial institutions are seeing measurable growth through niche digital banks.
- Esquire Bank helps attorneys finance case costs with rates and fees lower than typical financing through non-bank alternatives.
- BankMD targets recent medical school graduates saddled with education loans and high earning potential.
The truth is: Traditional financial institutions can achieve next-level growth with the people, processes, technology and innovation to get to market quickly, and at a lower customer acquisition cost than a traditional bank model. It just takes a technology partner committed to shared outcomes and innovative vision.
Nymbus integrates everything needed to build out and operate a full-scale digital bank positioned for success on day one. Our BaaS model means skipping a core conversion and the need to hire additional resources. We connect banks with digital-only niche banks that deliver growth in deposits, loans and payments at unprecedented speed, providing experiences that delight — and keep — customers regardless of the path to growth you choose.