How 3 community banks are innovating with fintechs

As a community bank looks to broaden its suite of products and services to meet customer demand and keep up with the rapidly changing banking landscape, a fintech can bring the technology, expertise and nimbleness it needs.

Finding the right partner can make all the difference between a traditional vendor relationship and one that evolves and sparks new ideas.

We asked three community bank-fintech partnerships to tell us not only about the products and services they’ve built together, but also about the secret ingredients that elevate their offerings: compatibility and a shared sense of purpose.

Central Bank of Kansas City & kinly

Kinly, a financial services company in Overland Park, Kan., offers a mobile app with banking services provided by $325 million-asset Central Bank of Kansas City (CBKC) in Kansas City, Mo. These services are geared to underserved individuals, particularly African Americans, with the tagline, “Unapologetic banking built for Black America.”

“After the murder of George Floyd in 2020, I realized that I needed to do more for my community,” says kinly cofounder and CEO Donald J. Hawkins, an ICBA ThinkTECH Accelerator alumnus. “I decided to do my part in helping create solutions for Black America. One of the clear solutions we needed was access to a more equitable financial offering.”

Kinly, formerly known as First Boulevard, app users can open CBKC depository accounts that feature no monthly fees, no minimum amount requirements and no overdraft fees. They can also sign up for “early direct deposit”: access to paychecks up to two days early, provided the individual’s payroll provider submits the deposit early. Kinly’s app also offers financial education courses, as well as spending recommendations and real-time insights based on an individual’s purchases.

The partnership was a natural fit: CBKC has also been focused on serving the underbanked in its communities since its inception in the 1950s, particularly since its certification as a community development financial institution in the mid-’90s, says Trent Sorbe, founder and president of Central Payments, a CBKC subsidiary that handles the community bank’s fintech relationships.

“These shared Kansas City roots led us to seek out Donald when we were looking for the first entrepreneur-in-residence for our fintech accelerator program, Falls Fintech,” Sorbe says. “Once we started learning more about his plans for kinly and his focus on serving those who haven’t historically gained access to affordable financial products, the partnership really materialized.”

Kinly is the first Falls Fintech alumnus that Central Payments has brought to market. The teams used the 12-week accelerator to complete the necessary pre-launch due diligence work, product design, functionality and technical integration with Central Payments’ Open*CP Fintech API Marketplace.

According to Sorbe, Open*CP serves as the technology hub, enabling the kinly team to focus on “exceptional” user experience by leveraging Central Payments for access to providers of services like transaction processing, card manufacturing and identity verification, as well as bank issuing services. This simplifies the technical work and expedites market availability for kinly.

“The Central Payments-kinly relationship effectively does away with the traditional program manager concept, which most view as unnecessary middleware in the fintech age,” Sorbe says. “Central Payments’ role in the relationship is significantly deeper than the traditional role of sponsor bank, particularly as it relates to technology.”

CBKC and kinly have similar goals to build prosperity and opportunities for African Americans, with sights on the broader community nationwide. “By combining efforts, we can make a meaningful and lasting difference for millions of people,” Hawkins says.

Hawkins’ previous venture, Griffin Technologies, offers a customer engagement solution and an audience engagement solution to community banks. He took that company through the ThinkTECH Accelerator and earned the Bankers’ Choice Award at ICBA LIVE in 2020.

Hawkins remarks on the experience: “Not only was I able to scale the company; getting to know so many bankers on a personal level was enlightening and inspiring. There were so many stories of resilience and perseverance in service of their communities that were very familiar to my own story.”

Lead Bank & Closing Cost Help

Closing Cost Help is a Columbia, Mo.-based fintech that offers veterans loan options to cover the closing costs of Veterans Administration (VA) mortgage loans via its digital platform, ClosingCostHelp.com. The short-term loans are originated and serviced by $750 million-asset Lead Bank in Kansas City, Mo.

Josh Kaplan

“One of the benefits of VA home loans is 100% financing: no down payment required. But what often catches borrowers off guard are the closing costs,” says Josh Kaplan, CEO of Closing Cost Help. “So we’re knocking down one of the biggest barriers of entry into homeownership for these veterans.”

In June 2020, Closing Cost Help reached out to Lead Bank to discuss a potential partnership given the community bank’s previous experience implementing banking-as-a-service (BaaS) fintech partnerships, says Lead Bank’s chief financial officer, Chris Bornheimer. The companies began discussing potential synergies and how Lead Bank could scale the program.

“Lead Bank’s community-minded reputation and fintech experience aligned with Closing Cost Help’s values and goals,” Bornheimer says. “Most importantly, both entities were focused on the goal of improving the ability of a group of homeowners, specifically veterans, to be able to provide competitive bids to realize their dream of homeownership and wealth creation.”

In this BaaS partnership, he adds, Lead Bank provides services typically unique to a bank: expertise in compliance; regulatory and legal management; risk management/program development; and scalable systems to provide loan servicing, data management and reporting. Data system enhancement allows for real-time feedback on compliance management, financial performance and enhanced risk management.

Lead Bank originates and services the short-term unsecured loans, but Closing Cost Help maintains a reserve at Lead Bank to offset any credit risk, Kaplan says. The two partners have a revenue sharing agreement.

“One of the biggest ways this [Lead Bank] partnership benefits us is compliance. Breaking into the industry as a fintech startup is very difficult.”

—Josh Kaplan, Closing Cost Help

Loans offered on ClosingCostHelp.com have terms of either three, four or five years, and rates which can fluctuate. “We believe that by working with Lead Bank, we’re able to provide rates lower than the typical unsecured personal loan,” Kaplan says.

The automated loan origination platform is geared to be a B2B2C platform: The end customers are veterans, but the model serves mortgage companies working with veterans to secure VA mortgage loans, Kaplan says. Before a loan is granted for closing costs, a mortgage loan officer can determine whether the borrower’s debt-to-income ratio would not be adversely affected so they could still qualify for a VA mortgage loan.

“One of the biggest ways this partnership benefits us is compliance [and infrastructure],” he adds. “Breaking into the industry as a fintech startup is very difficult, costly and legally challenging. We have to make sure we’re not breaking any banking laws. Having a partnership with Lead Bank to ensure we’re compliant is super helpful.”

Another benefit is scalability, he says. The partnership allows Closing Cost Help to offer loans to borrowers across the entire country.

When looking for a banking partner, Kaplan and his team spoke to a number of banks that had very large fintech partnerships, but since their startup was still operating at a small level, they determined it was better to partner with a bank that could grow with them.

“I really liked Lead Bank because their partnerships are mission focused,” he says. “For instance, one of their other partners helps the underbanked and, of course, we are helping veterans become homeowners. They have been very easy to work and communicate with while we are building our integration from the ground up, as opposed to just trying to figure out how to integrate with a large bank’s already existing process.”

According to Bornheimer, the rise of digital and mobile banking has expanded the definition of “community” for some community banks. “This partnership allows Lead Bank to expand its community and fulfill its mission of being at the heart of the success of its communities, in this case successfully expanding the goal of home ownership for a community that may not otherwise be able to meet that goal,” he says. “It allows Lead Bank to live its values of being open to new ideas, imaginative in its products and nimble to quickly respond to an identified need.”

Solvay Bank & Biz2X

Biz2X is a lending platform provider based in New York City that helped $1.1 billion-asset Solvay Bank in Solvay, N.Y., more efficiently make Paycheck Protection Program (PPP) loans to the small businesses in its community that were hit hard by the COVID-19 pandemic.

Darren Hecht

“Our partnership with Biz2X allowed us to simplify and streamline the PPP application process with an online portal, pivoting from manual paper processing to electronic submissions to the SBA,” says Solvay Bank president and CEO Paul Mello.

Biz2X licenses its technology to financial institutions, including community banks such as Solvay, to allow them to originate loans with a digital application to improve client accessibility and underwrite loans more efficiently using Biz2X’s cloud platform, says Darren Hecht, senior vice president, sales at Biz2X.

For processing PPP loans, the fintech launched a turnkey solution that could be set up in one week. Using Biz2X’s integration with the SBA’s E-tran system, the solution checks eligibility, automates data, gathers documentation and submits the full package electronically.

“We received an inbound request through a digital awareness campaign, and Solvay inquired about a demo of our Accelerate SBA platform,” Hecht says. “Solvay was seeking a solution provider that offered the ability to better manage the overall program [and] ongoing rule changes and that could be set up quickly to use before the [PPP] funds ran out.”

According to Hecht, after a few demo sessions and the due diligence process, Biz2X’s team “worked feverishly” with the community bank’s senior leadership over one weekend to finalize the agreement to ensure the launch would be on schedule to begin assisting Solvay Bank’s clients.

“Solvay was very thorough throughout the accelerated diligence process to make sure everything was in order,” he says. “Solvay had no interest to develop a solution in-house or contract with an outside firm to build, so it was the perfect marriage between need, experience and technology.”

Solvay benefited by licensing Biz2X’s technology to meet client expectations in today’s digital world. “That strengthens overall bank loyalty,” Hecht says. The bank was also able to keep existing staff focused on their core responsibilities.

“This is a unique time in the market where bank consolidation is happening, and clients have high expectations for digital in the new COVID reality,” he adds. “It couldn’t be a better time to invest in technology.”

Mello adds, “As a community-focused bank, we are committed to providing our customers with a suite of digital products and solutions to make their banking experience as efficient as possible.”

“The perception of [community banks and fintechs] being adversaries is outdated, as most banks are looking to partner.”

—Darren Hecht, Biz2X

Banks should be open-minded on new ways to solve problems and resist the urge “to always build,” according to Hecht. “Cloud also allows software to be deployed more quickly, and with the speed of change in the market, banks can benefit from fintechs like Biz2X that specialize,” he says. “Many banks still fall into the trap by going with a legacy provider that offers a broad solution set but is unable to invest enough in any particular area to really deliver.”

Hecht believes that to improve their solutions, fintechs should always seek valuable feedback from community banks. “Both can really benefit from each other,” he says, “and the perception of the two being adversaries is outdated, as most banks are looking to partner.”