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Summary List PlacementSmall and midsize financial institutions (FIs)—those with under $100 billion in assets—can’t hope to compete directly with the quality of digital user experience (UX) on offer at the largest US banks due to their smaller tech budgets. Per 2020 eMarketer data, the nine largest US banks accounted for 60% of total banking IT/tech expenses as of May 2020. 

And with the onset of the coronavirus pandemic ultimately forcing banks of all sizes to reduce in-person services and turn to digital, FIs face intense pressure to keep up with digitization demands. Despite obstacles small FIs may encounter when it comes to a digital transformation, there are many advantages and strategies they can utilize to reach success and remain competitive in the space.
How can smaller FIs use digital to their advantage?
While smaller and midsize FIs may lack the financial resources as their larger counterparts, they tend to have higher consumer trust than some of the largest US banks. This trust could offset some of their delayed innovations. Additionally, their deeper customer relationships can enable them to roll out more granularly personalized products.
Smaller FIs can also offer more competitive rates on financial products than large and giant banks, which they can combine with convenient application processes to deepen customer loyalty.
Innovation strategies for small and midsize FIs
Despite the financial and digital obstacles smaller and midsize FIs face, there are key strategies they can harness. Below are some of the strategies Insider Intelligence outlines in the Strategies for Small and Midsize FIs Report: 

Partner: Teaming up with a fintech or software vendor either to leverage its existing products or shape the design of new ones is often the best option open to smaller FIs due to cost efficiency and faster time to market.
Build: Building digital products and services in-house from scratch with no or minimal input from vendors is typically cost prohibitive for smaller FIs, but some are customizing this approach by heavily adapting off-the-shelf products.
Exchange: Participating in consortia to pool resources and exchange best practices is an ideal fit for smaller FIs, enabling them to achieve more collectively in terms of digital user experiences than they could independently.

Want to learn more?
Insider Intelligence’s Innovation Strategies for Small and Midsize FIs Report discusses the unique challenges and advantages small and midsize FIs face in relation to digital innovation; outlines the innovation strategies open to them, and their pros and cons; and gives real-world examples of these strategies in action.
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