Almost 80% of community banks in the United States have entrusted their core systems to fintech providers, according to FedFis’ 2025 fintech banking data. This data reveals a profound shift in the banking industry, particularly within community banks. It’s not just a trend; it’s a critical pivot towards modernization and technological innovation, and it underscores the growing trust in fintech partnerships.
Embracing fintech is more than a technology choice. It’s a core strategic decision that directly impacts the future growth and success of the community bank.
When community banks engage in fintech partnerships, they open the door to a range of opportunities but also face several challenges that need careful consideration. Let’s explore the opportunities and challenges associated with bank-fintech relationships and how community banks can position themselves for success in 2025 and beyond.
Building a Future-Ready Foundation
Community banks thrive on relationships, but operating on outdated bank technology can make it harder to sustain them. Legacy systems and infrastructure often rely on manual processes, which can slow operations and increase costs. It can also limit growth, and increase security risks, making it harder to meet customer expectations and maintain trust. Upgrading bank technology is essential to staying competitive and ensuring long-term stability.
To address these challenges, many community banks are adopting modern fintech solutions that enhance efficiency, security, and customer experience. Today’s emerging technology helps financial institutions prevent fraud, secure customer data, enhance customer support, and streamline operations, making banking more convenient and user-friendly.
Fintech Partnerships: Expanding Capabilities and Reach
Choosing the right fintech partner is crucial for community banks looking to modernize and grow. Rather than just evaluating features, banks should assess how well a vendor’s technology integrates with their existing systems, supports regulatory requirements, and aligns with long-term business goals.
A good example of this is Washington-based Coastal Community Bank, who partnered with Synctera in 2015 to offer Banking as a Service and expand its market share. This collaboration provided Coastal’s clients with seamless financial services and a broader range of digital solutions, including marketing and reconciliation tools. Synctera brought the technical expertise Coastal needed to implement the service, ensuring compatibility with existing systems while supporting the bank’s long-term strategy. Beyond streamlining operations, fintech partnerships like this also help address data security, a top priority for community banks.
Data Security: Protecting Customer Trust and Business Continuity
As data breaches become more frequent and costly, community banks are prioritizing cybersecurity. The 2024 CDW Cybersecurity Research Report revealed that financial institutions face a higher incidence of data breaches compared to over two-thirds of all other organizations. To strengthen their defenses, many banks are relying on fintech partnerships to leverage AI-powered monitoring, zero-trust architectures, and end-to-end encryption to enhance security and resilience.
When entering a fintech contract, community banks must be mindful of data ownership issues. To avoid vendor disputes and ensure compliance, the Federal Reserve System urges banks to maintain access to their data stored with fintech providers, allowing them to manage operations effectively while meeting regulatory requirements.
Integrating Strategy, Technology, and ROI
Beyond security enhancements, fintech partnerships offer strategic advantages that promote long-term growth and efficiency. We encourage community banks to shift their perspective on IT spend, viewing it not as a cost but as an investment that should contribute tangible results. Universally relevant metrics include reduced operational costs, increased customer retention and deposits, and faster product delivery. These indicators help justify IT investments and demonstrate their strategic value in supporting the business goals.
Top Challenges of Bank-Fintech Partnerships
While fintech partnerships offer significant benefits, they also come with challenges that community banks must navigate carefully. Here are some of the top concerns and how banks can address them effectively.
1. Integration with Legacy Systems
Many community banks still rely on outdated core banking platforms that aren’t designed to integrate with modern fintech solutions. This can make migration complex, costly, and time-consuming. A poorly executed integration can disrupt operations, create security vulnerabilities, and frustrate customers. To avoid this, banks should take a structured approach, aligning technology upgrades with business goals, investing in scalable solutions, and prioritizing security and compliance from the start.
2. Balancing Innovation with Security
Fintech partnerships often require sharing sensitive customer data, raising concerns about privacy and cybersecurity. With financial institutions facing a rising number of data breaches, banks must ensure their fintech partners have strong security measures in place such as AI-driven threat detection, end-to-end encryption, and zero-trust architectures. It’s also crucial that banks retain full control over their data and maintain compliance with regulatory requirements.
3. Navigating Regulatory Compliance
The financial industry is heavily regulated, and fintech collaborations introduce additional complexity. Banks must ensure their partners comply with key regulations such as the Dodd-Frank Act, anti-money laundering (AML) rules, and Know Your Customer (KYC) guidelines. A proactive compliance strategy, including ongoing vendor audits and clear contractual agreements, can help mitigate regulatory risks.
4. Managing Vendor Relationships and Risk Management
Not all fintech providers are created equal. Community banks must carefully evaluate potential partners for financial stability, security, and reliability. A key concern is vendor dependence. If a fintech provider faces financial trouble or fails to meet service expectations, the bank could be left scrambling. To minimize this risk, banks should establish clear service-level agreements (SLAs), conduct thorough due diligence, and have contingency plans in place.
5. Aligning Organizational Culture
Traditional banks and fintech firms often operate at different speeds; banks focus on compliance and long-term stability, while fintechs emphasize rapid innovation. These cultural differences can lead to friction. Successful partnerships require open communication, shared goals, and a mutual understanding of risk management and regulatory expectations.
6. Ensuring a Seamless Customer Experience
While fintech solutions can enhance customer service, poor integration can create a fragmented experience. If customers must navigate multiple platforms or deal with inconsistent service quality, frustration can set in. Banks should prioritize fintech solutions that complement their existing offerings and maintain the personalized, relationship-driven service that customers expect.
7. Measuring ROI and Controlling Costs
Technology investments should deliver measurable benefits, but fintech partnerships often require upfront costs that don’t immediately translate into returns. Community banks must carefully evaluate the financial impact, including efficiency gains, customer acquisition, and long-term scalability. Instead of viewing IT spend as a cost, banks should treat it as a strategic investment with clear success metrics, such as improved customer retention or faster product delivery.
8. Managing Change and Training Staff
Adopting new technology requires a shift in how bank employees work. Staff may be resistant to change, especially if new systems disrupt established workflows. To ensure smooth adoption, banks should invest in comprehensive training programs and clear communication strategies. Change management is just as important as the technology itself.
9. Preserving Customer Trust Amid Innovation
Community banks are built on trust and relationships. While fintech solutions can drive efficiency, there’s a risk of losing the human touch if technology feels too impersonal. Banks must strike a balance, leveraging fintech for automation where it makes sense while ensuring customers continue to feel valued and supported.
Mitigating These Challenges
For community banks, fintech partnerships present both opportunities and risks. Navigating these relationships successfully requires a thoughtful, hands-on approach—one that prioritizes trust, security, and long-term growth. Here’s how banks can set themselves up for success while mitigating potential pitfalls.
Choosing the Right Fintech Partner
Not every fintech provider will be the right fit. Banks need to do their homework, looking beyond flashy technology to evaluate a provider’s financial health, security protocols, regulatory compliance, and track record. A partner should not only bring innovation to the table but also demonstrate reliability and a shared commitment to responsible banking.
Setting Clear Expectations from the Start
A strong partnership begins with a clear agreement. Well-defined contracts, including service level agreements (SLAs) and risk management frameworks, help prevent misunderstandings down the road. Banks should ensure that terms around security, data ownership, and contingency planning are spelled out upfront, creating a foundation for a smooth and transparent collaboration.
Making Collaboration an Ongoing Effort
Fintech partnerships aren’t a “set it and forget it” arrangement. Regular check-ins, open lines of communication, and shared strategic goals are essential to keeping both parties aligned. A true partnership means working together, not just during onboarding, but continuously to solve challenges, optimize performance, and adapt as the market evolves.
Keeping the Customer Experience Front and Center
Fintech solutions should integrate seamlessly with existing banking services, making interactions easier and more intuitive for customers. Banks must ensure that digital enhancements compliment—not complicate—the services they already provide.
Preparing Teams for Change
A new technology is only as effective as the people using it. Employees need proper training, not just to operate new systems, but to understand how these changes impact their roles and the bank’s broader goals. Change management is just as important as technology adoption, helping teams feel empowered rather than overwhelmed.
Staying Ahead of the Curve
The fintech landscape moves fast, and banks that don’t keep up with technological advancements risk being left behind. Staying informed about emerging trends, regulatory shifts, and evolving customer expectations allows banks to make smart, forward-looking decisions. The key is to embrace change as an opportunity rather than a challenge.
By taking a strategic, hands-on approach, community banks can turn fintech partnerships into powerful drivers of innovation, efficiency, and growth—while maintaining the trust and stability their customers rely on.
Setting Your Bank Up for Success in 2025
According to industry data, many community bankers, faced with the rapidly evolving technology landscape, worry they’ll soon be unable to meet growing regulatory burdens and provide shareholders with competitive returns. Strategic bank-fintech partnerships can help community banks offer superior solutions to customers, streamline processes, and safeguard client data.
As the Independent Correspondent Bankers’ Bank emphasizes, ‘Choosing the right fintech partnerships is a strategic decision that community banks cannot afford to take lightly.’ A trusted IT advisor can help ensure that technology initiatives align with business objectives and deliver tangible results.
At Hartman, our team of experienced Chief Information Officers and IT experts help community banks understand and leverage technology to drive profitability. Interested in learning more? Reach out to the experts at Hartman Executive Advisors for a strategy session today.
