How cloud technology helps smaller banks innovate in payments

March 30, 2022 Windstream Enterprise 4 min

Editor’s Note: Fintechs have completely disrupted the banking industry this past year, pushing banks of all sizes to start taking digital solutions more seriously. But staying competitive in a digital age isn’t only something large institutions have the capability to do. Smaller banks can easily create the foundation they need to adopt payment and transaction technology quickly by utilizing cloud-based networks. UCaaS and CCaaS are both great starting options for banks to strengthen their capabilities.

Rise to the challenge by adopting cloud-based technology first. 

Summary: Smaller banks that want to remain competitive in the digital age are wise to partner with providers of cloud-based banking technologies, which allows them to access bigger markets while developing more innovative and customized financial products.

Smaller banks are partnering with providers of cloud-based banking technology to develop lending and payment products that are more competitive compared to those from fintechs and larger institutions. 

“We need to transform our technology stack so we can be innovative, move at a faster pace, and control our own destiny.”—Samantha Pause, Mascoma Bank

These partnerships focus on products such as buy now/pay later, early salary payments, online loan applications and credit cards. 

“It’s difficult for community banks to compete with the fintechs that are entering the market and with the innovative products and services provided by big banks,” said Samantha Pause, chief marketing and benefit officer at Mascoma Bank, a Lebanon, New Hampshire-based community bank. “We need to transform our technology stack so we can be innovative, move at a faster pace, and control our own destiny.” 

In January, Mascoma Bank said it would replace its core processing system with London, U.K.-based Thought Machine’s cloud-based Vault platform. Mascoma, which has assets of $2.6 billion, is migrating to the cloud because it currently relies on its legacy core banking provider to deliver products for its customers. 

“We want to develop products that suit our customers rather than what our core provider tells us to provide,” Pause said. 

Mascoma is interested in finding out if offering buy now/pay later might benefit its customers, Pause said. 

Using Thought Machine’s APIs, Mascoma will be able to connect separate systems, including loans, cash management and digital banking, into its core system, and offer customized products and pricing. 

“All our data will live in one space so staff can use it to understand our customers and make better decisions,” said Pause. “We can give them products they need instead of throwing the product of the month at them.” 

A bigger market through the cloud 

Seattle Bank, a boutique bank with a single branch in Seattle, migrated to London, U.K.-based Finastra’s cloud-based banking platform in February 2020. 

“We knew technology would be important in enabling us to compete with larger banks and fintechs,” said Josh Williams, Seattle Bank’s chief banking officer and head of partnerships. 

The bank is working to expand beyond its high-net-worth client base into the mass market and target other U.S. geographies beyond its core market of the Pacific Northwest with services such as consumer lending and early salary payments. It also wants to offer customized credit limits for high-net-worth customers, Williams said. 

Seattle Bank, which has $762 million of assets, plans to use Finastra’s APIs to integrate via banking-as-a-service with fintechs that want to leverage its license and liquidity to provide services where they own the client relationship. It also aims to provide embedded banking to marketplaces that want to place its brand into their platform without owning the customer relationship, said Williams. 

“We’re looking at cases where merchants want to add point-of-sale financing solutions for larger-ticket purchases and need credit underwriting for longer-term loans than are provided through BNPL platforms,” Williams said.

Because it migrated to the cloud before COVID, Seattle Bank introduced its Paycheck Protection Program platform two weeks after the CARES (Coronavirus Aid, Relief and Economic Security) Act came into effect. “We couldn’t have done that with our old system,” Williams said. 

Competing with larger banks 

To expand across Canada from its core market of Quebec, Laurentian Bank of Canada, which is based in Montreal and has US$35.2 billion of assets, has partnered with Brim Financial, a fintech in Toronto that provides banks with digitally enabled credit cards on a cloud-based platform-as-a-service basis. 

“We decided not to play catch-up but to leapfrog the competition by partnering with [a fintech that offers platform-as-a-service technology].”—Rania Llewellyn, Laurentian Bank of Canada

“Our strategic review found that we fell short significantly in terms of digital capabilities,” Rania Llewellyn, Laurentian’s president and CEO, said. “As we can’t compete with larger banks by building new products and we have legacy systems, we decided not to play catch-up but to leapfrog the competition by partnering with Brim.” 

By integrating Brim’s platform-as-a-service technology, Laurentian will be able to replace the five vendors currently servicing its Visa credit card product, Llewellyn said. 

This article was written by Robin Arnfield from American Banker and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

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