Nearly 120 years ago, Lincoln Savings Bank was a one-branch ag bank. Today, it’s a leading player in the world of fintech enablers and banking-as-a-service (BaaS), helping to bring financial services to people across the U.S.
By Eric Best
Name: Lincoln Savings Bank
Assets: $1.4 billion
Location: Reinbeck, Iowa
Through its latest initiative, Lincoln Savings Bank is able to reach roughly 3 million new customers. That’s not far off the population of its home state of Iowa.
The number of customers LSBX reaches through its fintech partners
But many of those customers aren’t located in the Midwest—far from it, in fact. The $1.4 billion-asset community bank in Reinbeck, Iowa, serves these customers through LSBX, its fintech department. By offering banking-as-a-service, or BaaS, to popular financial services apps like Square’s person-to-person payment Cash App in San Francisco; investing app Acorns in Irvine, Calif.; M1 Finance in Chicago; and Qapital of Stockholm, Sweden; Lincoln Savings Bank has grown in ways its local market hasn’t.
“The number of relevant customers in our footprint is decreasing, and so [we asked], what are we going to do?” says Mike McCrary, the community bank’s first vice president and relationship manager. “I started looking around [and asked,] what would a digital-first community bank look like? How do we remain useful [and] relevant within our customer base 20, 50 years from now? There was definitely long-term thinking. It’s not hard to come up with analogies for industries that have been disrupted and what that’s meant for them.”
“Early on, I think we were willing to try and experiment. It’s really difficult to experiment in banking … but you can do it in small-scale, metered ways.”
—Mike McCrary, Lincoln Savings Bank
The work started back in 2013 with talks with CorePro, which offers solutions for digital banking and other financial services to consumers, businesses and other fintechs. Qapital was an early adopter of CorePro, Austin-based Q2’s open application programming interface (API) core platform. LSBX uses the platform’s core solutions to make working with fintechs possible.
“Early on, I think we were willing to try and experiment,” McCrary says. “It’s really difficult to experiment in banking … but you can do it in small-scale, metered ways. One of the things we brought to the table was that we were able to make and maintain long-term business relationships. These are highly engaged, highly involved relationships.”
But these partnerships weren’t forged overnight. The community bank had a lot of due diligence to do before onboarding, McCrary says. This included looking at business plans, examining the investors behind these companies and sniffing out compliance or legal risks. It’s not so different to what the community bank’s commercial lending department does when it’s forging small business lending relationships.
“This is a venture that we’re all-in on,” says Kelly Flege, Lincoln Savings Bank’s first vice president and LSBX leader, “but not at the expense of our traditional community bank relationships and infrastructure.”
Lincoln Savings Bank brought on the technical and regulatory expertise to make LSBX work. It hired its first chief operations officer, along with a dedicated LSBX operations team, a chief risk officer, a chief compliance officer, Bank Secrecy Act (BSA) officers, additional internal audit team members, a chief risk officer and more. “Just immense support at all levels of the bank,” Flege says.
Disruptors with a difference
The primary services that LSBX provides these fintechs, beyond a connection to the banking system as a bank of record, include bank accounts, debit cards, person-to-person (P2P) payments, remote deposit and even check writing capabilities. The community bank is also involved in how its partners design and operate their solutions. Though they are fintechs, Flege says, these companies see value in banking products and the high-touch community banking relationship. Both they and Lincoln Savings Bank want to make financial services more accessible to everyone.
“Fintechs are disruptors in the market,” she says. “They seek to disrupt the traditional, stereotypical definition of what banking is; not necessarily community banking, but generalized banking.
“It gets back to being able to share the fundamental core values of being a community bank. … We get to share Iowa values with our partners around the country in the name of serving customers.”
On the industry’s edge
Lincoln Savings Bank’s longtime culture of innovation supported by leadership made LSBX possible. In fact, the nearly 120-year-old community bank was recently named FinTech Company of the Year by the Technology Association of Iowa, beating out both large companies and traditional fintech startups. It’s the first financial institution to win the award.
Of course, launching a fintech department has other benefits beyond reputation. So far, the roughly 3 million pass-through customers of LSBX have spent more than $350 million and swiped their cards 13 million times. While debit cards and deposit gathering aren’t new revenue streams for Lincoln Savings Bank, McCrary says, the scale of LSBX is new.
Plus, working with fintechs has pushed the community bank creatively and technologically to provide new services and features. It’s also connected Lincoln Savings Bank to industry innovators around the world. “Frankly, it’s put us in front of a lot of really interesting opportunities early on,” McCrary says. “The velocity at which we see through new ideas in the industry has increased.”
Despite the successes this initative has seen over the years, McCrary stresses that there was no promise LSBX was going to be profitable or even work at all. Nor was it easy. However, rather than a risky “Hail Mary” play to save a failing financial institution, LSBX has, he says, been the result of an innovative long-term vision. Flege and McCrary agree that innovation has always been part of the culture of Lincoln Savings Bank.
“It takes a healthy bank with a sense of vision to be able to go pursue something [like LSBX],” McCrary says. “Innovation really just means, ‘How do I look at this problem in a different way and apply a solution?’”
Eric Best is deputy editor of Independent Banker.