2019 Journal of Community Bank Case Studies

Eastern Kentucky University

SECOND PLACE:

that business owners are more satisfied with small bank lenders than large bank or online sources of financing” (New York Federal Reserve). As the OCC begins processing charter applications, Fintech firms are attempting to offer community bank style service. In digital- only form, Fintech firms cannot provide in- person, one-on-one customer interaction and understand the community. The result is a tradeoff between personal banking relationships focusing on individualized service for artificial intelligence and algorithms. Regarding Fintech innovation and the lag between startup and regulation, the ICBA said “Financial regulation tends to follow, not anticipate, changes in the financial services industry” (Financial Technology Roadmap). Recognizing the need for updated regulation following the emergence of Fintech, the FDIC has developed a “transformative” mindset to allow community banks to remain viable and not be left behind (Barefoot). Following this, community banks have been receiving training and seizing partnership opportunities with Fintech firms. This strategy comes with the understanding that consumer opinion regarding Fintech is increasingly positive, especially amongst the younger generation. The FICO report Millennial Banking Insights and Opportunities reported that “Over 50% of Millennials are already using or considering payment companies like PayPal or Venmo” and that “compared to the age 50+ demographic, millennials are over 10 times more likely to consider the use of peer-to-peer lenders” (FICO 3, 5).

Community banks are cautiously exploring Fintech collaboration to remain competitive. In 2018 a group of 12 community and regional banks formed Alloy Labs Alliance to partner with startup Fintech firms. They will work toward moving their institutions into the next era of banking by studying compliance issues, business practices and providing assistance to other community banks who may not be ready to embrace Fintech (Peyton). As community banks work toward innovation, state regulators, as the main regulators of non- banking services are working collaboratively to transform the licensing and supervision of fintechs and other non-banks offering financial services. The Conference of State Bank Supervisors’ Vision 2020 plan includes a regulatory framework for fintechs to operate in a safe and sound manner while supporting innovation among community banks and decreasing regulatory burden on community banks by coordinating federal and state regulation procedures. (Vision 2020). In conclusion, Kentucky Bank expects positive results from EGRRCPA and it felt an immediate, significant impact from the Tax Cuts and Jobs Act of 2017. This suggests that right-sized regulations and less burdensome tax laws could be key in allowing community banks to remain viable in an increasingly competitive market. Looking forward, these factors combined with technological innovation and a continued commitment to customer and community service should result in community bank success for decades to come.

43