2019 Journal of Community Bank Case Studies

2019 COMMUNITY BANK CASE STUDY COMPETITION

financial products with speed, convenience, more credit availability and better rates than traditional banks is rapidly growing. This superiority over traditional banks could be devastating to community banks. In a 2016 report by McKinsey and Company, it was estimated a total of 15 to 25% of banks could “be gone” by 2020 due to a combination of burdensome regulation and Fintech disruption (Zeffer). It should be noted, however, that due to their smaller size and market agility, community banks might be less affected by market disruption than their larger counterparts. For example, in response to a significant disruption a large bank would have to alter procedures and training for hundreds of branches, thousands of employees and a reassessment of hundreds of billions of dollars in assets and liabilities. On the other hand, community banks would respond by retraining fewer employees and reconciling less capital across their fewer locations.

Nationally chartered fintechs and challenger banks could provide loans and financial services if community banks did not exist, but they would not give back to communities through locally aware donations or provide regional employment. In 2018 The Office of the Comptroller of the Currency announced plans to accept Fintech applications for National Bank charters under the stipulation, “. . . they would be subject only to limited safety and soundness supervision and examination would not be subject to the Community Reinvestment Act . . .” (ICBA Policy Resolution). This stipulation places no responsibility on chartered Fintech firms to reinvest in local communities. To quantify the potential impact Fintech firms have, it has been estimated that by 2020 Fintech loan originations will reach $90 Billion, an increase from $25 Billion in 2015 (Di Lorenzo). Approximately 2,649 Fintech firms have been identified across 16 categories in 61 countries with 3,945 investors and $139.8 Billion invested (Venture Scanner). Pursuant to the OCC’s announcement, Banking Tech compiled a list of 57 national challenger banks that have entered the financial market to seek chartered status. Many of those firms, like Alpha Business Bank, are exclusively looking to serve small and medium business enterprises (Andreasyan). Alpha Business Bank looks to compete directly with community banks by serving SMEs. The Federal Reserve’s Small Business Credit Survey Report of 2016 studied businesses with less than 50 employees across 26 states and found that “...the results show that small banks were the most common source of credit, and

To quantify the potential impact Fintech firms have, it has been estimated that by 2020 Fintech loan originations will reach $90 Billion, an increase from $25 Billion in 2015 (Di Lorenzo).

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