Insight

The digital future for mid-size banks

Through partnerships smaller banks can play in banking as a service (BaaS)

Sanjay Basu

Sanjay Basu

Managing Director, Mergers & Acquisitions, KPMG US

+1 212-954-8307

Azmat Mohammed

Azmat Mohammed

Director Advisory, Strategy, KPMG US

+1 312-665-6712

John Gorman

John Gorman

Director Advisory, Strategy, KPMG US

+1 212-997-0500

This is a Kodak moment for mid-size banks. The traditional branch banking model is looking costly and increasingly irrelevant in the age of digital banking services (like film in the age of digital photography). And small and mid-size banks have had trouble competing digital—they are not as agile as the fintechs and can’t match the massive investments that large banks have made. In this paper we show that there is a solution: Through partnerships, mid-size banks can not only provide the digital capabilities that customers want, but also find new growth in banking as a service (BaaS)—in which third parties resell the services of licensed banks. Research shows that these  “partner bank” arrangements earn two to three times the industry average return on assets.