When It Comes to Fintech Partnerships, Look Before You Leap


fintech-5-12-18.pngAt the risk of oversimplification, there are essentially three categories of innovation in banking. There is a small but growing number of banks that have positioned themselves as early adopters of new technology. There are also fast followers, which are not the first banks to try a new technology but don’t lag far behind. Then there are the late adopters.

The digital economy is moving so fast that no bank today can afford to be in the final category. Being an early adopter is probably too risky for many institutions, but at the very least they need to be fast followers or risk getting left behind as the pace of the industry’s digitalization begins to accelerate.

How and when to successfully engage with a fintech company was a recurrent theme at Bank Director’s 2018 FinXTech Annual Summit, held May 10-11 at The Phoenician resort in Scottsdale, Arizona. Deciding to work with a fintech company on the development of a new consumer banking app or the automation of an internal process like small business lending is more than just another vendor relationship. Typically, these are highly collaborative partnerships where the fintech will be given at least some access to the bank’s systems and operations—and could be a risk to the bank if all does not go well.

The first piece of advice for any bank contemplating this kind of engagement is to perform a thorough due diligence of your intended partner. As highly regulated entities, banks need to make sure that any third-party service or product provider they work with have security and compliance processes in place that will satisfy the bank’s regulators. And the younger the fintech company, the less likely they have a compliance environment that most banks would (or should) be comfortable with.

Mark P. Jacobsen, president and chief executive officer at Arlington, Virginia-based Promontory Interfinancial Network, cautioned during a presentation that banks should not consider working with an early-stage fintech unless they have “an extremely experienced CIO, a very robust risk management system and access to very experienced legal talent.” It also makes sense for banks, to check a fintech’s references before finalizing its selection. “There are so many new things out there that it’s important to get that outside validation,” said Adom Greenland, senior vice president and chief operating officer at ChoiceOne Financial Services, a $622 million asset bank headquartered in Sparta, Michigan.

Cultural difference was also a recurrent theme at the Summit. Banks with a culture of innovation are more likely to be early adopters or, at the very least, fast followers. “Culture is a huge barrier to innovation,” said Bill McNulty, operating partner at Capital One Growth Ventures, a unit of Capital One Financial Corp., during a presentation on some of the common obstacles to innovation. “And culture always starts with people.”

McNulty said while he senses the urgency around innovation in banking is beginning to change, he knows of large fintech players that originally wanted to partner with banks, but have grown frustrated with the conservative culture at many institutions. “They decided it is too hard and takes too long and they would do it themselves,” he said. “If we don’t address culture, the best fintechs will do it themselves. Some of these companies will build [their own] banks.”

Bank Director announced the winners for its 2018 Annual Best of FinXTech Awards on May 10, choosing from among 10 finalists across three award categories, and while big banks were represented among the finalists—including U.S. Bancorp, Citizens Financial Corp., Pinnacle Financial Partners and USAA—two of the winners were community banks. And that fact underlines an important point when talking about innovation in banking. Small banks can play this game just as well and maybe even better than their larger peers.

How MySpend by TD & Moven Helps People Track Expenses


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If there’s one thing most consumers wish they could do better when it comes to managing their finances, it’s keeping tabs on spending. And while various technologies, apps and solutions have hit the market to help banking customers track their spending, one unique partnership is helping people get even more insight into where, when and how much they spend.

As the second largest bank in Canada—and 19th largest in the world—Toronto-based TD Bank serves over 22 million customers worldwide and over 11 million in Canada alone. And as an international big banking player, TD Bank faces stiff competition from competitors when it comes to offering branded money management and expense tracking technology. More and more, consumers are looking for apps that can help them monitor their expenses in real-time, on-the-go via smartphones and tablets. Bank of America, for instance, incorporated budgeting and expense tracking capabilities into the latest update of its mobile banking application.

Enter Moven, a New York-based fintech company focused on providing mobile capabilities to consumer facing financial services companies. Moven’s current white-label mobile product offerings to banks include a variety of functionality—from credit score monitoring and mobile banking to budgeting and expense tracking. That’s why Moven was a logical partner when TD Bank was searching for a company to help it develop a next-generation mobile expense tracking app. The result of this partnership was MySpend, a mobile, real-time expense tracking and money management app, made available to TD’s Canadian customer base.

The TD MySpend app was released in April of 2016, and quickly shot up to the number one spot in the category of free money management apps in the Canadian app store.

“Within nine months [MySpend] exceeded 850,000 registered users,” says Rizwan Khalfan, TD Banks’ chief digital officer. “[And] we are seeing customers who are using the app reduce their spending by around four to eight percent, with most frequent users seeing the greatest impact.”

MySpend alerts customers in real-time when any spending occurs using a TD Bank product or service, from a cashed check to credit card expenditures. Not only does this help customers keep tabs on their spending, it also serves to address potential fraudulent activity as soon as possible. MySpend also automatically categorizes all transactions, so customers can quickly log into the app and see how much they spent on rent, utilities, entertainment and so on. For a deeper level of insight, Moven built in a feature that compares a customer’s current month’s spending with their average normal spending patterns of prior months.

“I think the most compelling [MySpend] feature is the continual engagement with customers with the notifications,” notes Greg Midtbo, Moven’s chief revenue officer. “Before they even put their card away they get a notification, for example, of how much they spent dining out and how it fits into their monthly budget.”

The partnership with TD is also a great strategic move for Moven, as the firm is able to reach even more consumers with their technology using the white-label partnership model.

“We realized early on that we couldn’t get tens of millions of customers using the app across multiple geographies without partners like TD,” says Brett King, CEO and founder of Moven. “[Partners like TD] bring us real scale and solve one of the biggest problems that fintechs face today, which is recurring revenue growth.”

MySpend also illustrates the trend of banks partnering with fintech players to better utilize the large amount of customer data they possess, to turn back around and help those same customers succeed financially. While massive adoption rates and high app store rankings are great, the most impressive thing about TD and Moven’s partnership is that it’s helping customers save money. People that engage with the MySpend app on a regular basis have been found to spend less money than TD customers who don’t use the app, or use it infrequently.

The success that TD Bank and Moven are seeing with MySpend only increases the likelihood that the partnership will continue to expand. This could mean developing new features and capabilities within the MySpend app—Moven is already established in the mobile payments space—or making MySpend available to its millions of customers in the U.S. and even the U.K.

That’s because for Canadian consumers thus far, it’s been a simple equation—more time on MySpend equals less spending.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.

Innovation Spotlight: American Savings Bank


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Jack Kuntz, CEO, American Savings Bank

Jack Kuntz is president and CEO of American Savings Bank, with previous experience as the head of a core processing company. In this interview, Kuntz shares his thoughts about selecting providers, the benefits of investing in technology at both the employee and consumer level, and creating the bank’s most accessible customer service line—his personal cell phone number.

What investments in technology has American Savings Bank made that have added value?
Our investment in technology has been significant over the past three years and has provided a major component to our successful growth. American Savings is a multiregional bank with concentration in two areas of Ohio. One essential technology we employ is an HD video conferencing system which has saved time and money for the bank while reducing employee stress and protecting their safety by not driving two hours one way to attend a meeting. We use the system for everything from board meetings to operational meetings, and the technology is as effective on a PC or smart phone as it is on the big screens. In late 2015, we changed core processing systems, installed a new loan origination system and upgraded to a new mobile app. From a back office perspective, we have installed new and stronger vendor management and cybersecurity systems. All of these new technologies provide a benefit to the bank and our customers.

What made you decide to switch core processing systems?
Switching to a new core provider is the most significant and risky technology decision that a bank can make. Prior to becoming president of a core processor, I was in charge of support and conversions and was involved in dozens of core conversions over a span of nearly two decades. That first-hand knowledge about the costs of a conversion not only in dollars, but in employee stress, customer frustration and overall community reputation was invaluable. I believe there are three basic reasons to change core providers: you are paying too much, the current provider is lacking the products you need, or for some other reason you have lost confidence in the provider. Over the seven-year contract with the new provider, we are saving over 25 percent of our previous technology investment. That is significant as technology is the third largest expense item in our income statement, behind the cost of funding and personnel. Additionally, while having all the products of our prior provider, we were able to secure more commercial capabilities both on the loan and deposit side.

When it comes to implementing a fintech solution, would you rather buy, build or partner?
As a small community bank, building applications is cost prohibitive. In most cases we prefer to outsource major technologies to major players in the market. Our core, for example, is with D+H due to the many products the company offers. This gives our bank a single point of contact to obtain technology as we launch new and different products, as well as providing “one throat to choke” when the inevitable problems occur. When partnering or buying technology for the bank, a rigorous process is followed before a decision is made. Factors considered in our process include the financial strength of the provider, the fit of the product with our needs, viable references and accessibility to the decision makers within the provider’s company. Cost is always a factor but not the final determinant. My father used to say: “If you buy cheap, you buy twice”.

As consumer expectations in banking change, how does American Savings Bank stay connected with this audience?
We have found at American Savings that customer expectations vary in our two Ohio markets. In our metropolitan region, technology is more readily embraced, while the more rural region remains more face-to-face oriented. Having mobile, online loan applications, social media presence and other technologies are a prerequisite in today’s environment. Regardless of the region, we have created two keys to differentiating our brand. First is direct access to the CEO. All our advertising campaigns include my personal cell number. The second key is the reception you receive and the environment we create in our branch network. We provide a warm hello and fresh coffee or water in the lobby of our offices with cookies and pastries. I conveyed to my team that when a customer walks into one of our offices, I want them to feel like they walked into grandma’s house on Christmas Day.

How USAA and Nuance are Helping Millennials Save Money


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Serving over 11 million members, USAA has been providing financial services to military members and their families in the United States since 1922. And with baby boomers retiring in increasing numbers, USAA is using fintech innovation to better serve the next generation of millennial service men and women coming through the ranks.

According to Moody’s Analytics, U.S. adult millennials ages 35 and younger have a savings rate of negative two percent. Compare that with the 45-54 age bracket, which saves around 3 percent, or people 54 and older, who save 13 percent. For some millennials, serving in the armed forces may be their first real job. Or a millennial’s first experience with USAA might occur when a teenager is opening their first savings account and their parents are members.

USAA is recognizing the need to help millennials achieve their financial goals, and is leveraging technology innovations (and innovators) to do just that. What the company has done is partner with language and voice recognition software company Nuance to develop an app called Savings Coach to help millennials sock away more money.

With over 14,000 employees spread across 75 countries, Nuance is one of the larger players in voice and language technologies. Products like Dragon translation software, and now the Nina multilingual virtual assistant, are used by nearly two-thirds of Fortune 100 companies. Nuance’s Nina technology creates a virtual assistant that can communicate and respond to customers via voice or text. Companies create these assistants, tailored to their own industry, brand and customers utilizing Nina for the underlying architecture. That’s why it made sense for USAA to partner with Nuance to develop Savings Coach, one of the first proactive virtual banking assistants that is specifically designed to help Millennials save money. In fact, USAA was already working with Nuance on a separate virtual assistant initiative utilizing Nina technology when it decided to partner for Savings Coach.

Savings Coach interacts with users through a fun mascot called Ace the Eagle, which can speak and formulate certain responses, effectively creating a basic conversation with users. On the back end, Savings Coach crunches financial data and recommends a daily amount of money that users should have in their savings. It also gamifies the process of saving, something that can hook millennials—a generation that grew up on video games—into the process. For example, Savings Coach will reward users with a badge for completing certain money saving tasks, like cooking at home instead of spending more money ordering pizza delivery.

In a four-month trial pilot, USAA says that Savings Coach helped a cohort of 800 participants save a total of nearly $120,000. One of the things that makes Savings Coach both unique and effective is that Ace interacts and negotiates with users. Didn’t transfer that $100 to savings that you were supposed to this month? Ace might pop up and ask why you forgot, or even suggest transferring $90 if money is tight for that month. One strategy to help millennials save more money is to provide constant re-enforcement of good behaviors, using technology nuanced enough to recognize (and react to) all the small daily decisions that affect one’s ability to save money.

From Nuance’s perspective, the company is now able to explore the application of Nina technology in the financial services industry and hopefully gain a foothold in the future of artificial intelligence as customer facing entities. Savings Coach, unlike most financial apps, is a proactive virtual assistant. And that’s the wave of the future in fintech customer experience— technology that is both personalized and able to anticipate future needs or scenarios. For example, Savings Coach can predict what days a user will buy coffee based on past behaviors, and reward them with a badge or move money into savings when it sees they’ve shown restraint and skipped a day.

The successful partnership between USAA and Nuance to bring Savings Coach to market illustrates a broader trend of financial institutions focusing more than ever on the customer experience. And in today’s digitally dominated world, customer experience is nearly impossible to separate from technology. What makes Savings Coach so effective is that it combines great technology with a focus on personalizing the experience for each customer as much as possible.

Going forward, fintech bots (apps that perform automated tasks) and assistants are likely to broaden in functionality. Future apps will evolve to offer even more customized, proactive financial literacy and advice. The millennial consumer faces many challenges unique to that generation, like low savings, high student loan debt and housing prices that are beyond the reach of many of them. What USAA and Nuance realized is that by applying new thinking to existing problems and technologies, they’re providing millennials with their own personal savings coach, which could be their Ace in the hole.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.

Three Ways Fintech is Riding the Social Commerce Wave


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Consider two of the most prevalent digital trends over the last decade or so: social media and e-commerce. A growing number of users are interacting with companies on social media platforms such as Facebook, Pinterest and Instagram. An increasing number of people are also turning to the internet and e-commerce to purchase virtually any item, for any occasion. For these reasons, the emerging “social commerce” trend makes a lot of sense.

Social commerce is roughly defined as the intersection of social media and e-commerce. For example, Facebook has added a “buy” button, so consumers can make purchases directly without ever leaving the social network. In many ways, 2016 was the “Year of Social Commerce.” Worldwide, revenue earned directly through e-commerce using social media totaled $20 billion dollars in 2014, according to the software provider ReadyCloud.

As social commerce grows, so will the demand for products and services to manage the flow of payments from social networks to vendors and institutions on the back end. Fintech startups and banks are coming up with new ways to meet these demands. Here are three examples.

Social Gifting
There’s something inherently social about gift giving. Over the years, gift cards have become popular among both consumers and brands of all shapes and sizes. While gift cards might seem tailor-made for social commerce on a surface level, for the most part, people are still buying physical gift cards at retail locations and gifting them to friends and family, who then have to keep them in their wallet with countless others, which can be inconvenient.

That’s the problem that Texas social commerce startup Swych is aiming to solve. Swych has created a digital platform where consumers can send, manage and redeem their gift cards all in one place. Currently, Swych is available as an iOS app for U.S. consumers, and major retailers such as Amazon, REI and Sephora offer gift cards through the platform. Swych users can eliminate their physical gift cards by uploading them into the application if the retailer is on Swych. The company also introduced “Swychable” gift cards that can be redeemed with any retailer within the Swych ecosystem.

Swych aims to transform the gift card market from obsolete technology and a clunky user experience to a convenient and connected social future. Users can view friends’ profiles on Swych, see what brands they prefer and give a gift card that closely matches those preferences. Swych is tackling an outdated industry and making the experience better for both consumers and retailers.

Social Banking Apps
Many banks are wrestling with exactly how to adopt new technologies to capitalize on the social commerce phenomenon. Rather than spending the resources to develop social commerce technologies in-house, many banks are turning to white-label solutions. Urban FT helps banks integrate social commerce features into their online and mobile banking applications.

Specifically, Urban FT helps banks build social payment capabilities into the banks’ own apps, similar to what Venmo accomplishes. Moreover, banks can use Urban FT to provide retail customers with Yelp-style reviews, geolocation, coupons and other social features that people would typically find in third-party apps such as Foursquare or Groupon. Users can even make restaurant reservations or purchase gifts through banking apps that utilize Urban FT’s social commerce technology. Banks partnering with Urban FT realize that if they can offer these services within their own online and mobile banking ecosystem, they’ll be able to increase the lifetime value of those customers and learn more about their social commerce preferences.

Shopify Gets Social
Shopify is one of the largest players in back-end merchant e-commerce services. Anyone who wants to set up an online store, sell goods or services and collect payments recognizes that Shopify is probably the most comprehensive solution available. So it’s no surprise that Shopify is now introducing technologies that will make buying and selling on social media easy for everyday people. The company has developed a free app-based platform called Sello that allows anyone to easily set up an online store, share products on social networks and allow people to purchase these products on their mobile devices.

Sello exemplifies a broader movement within social commerce, which is the democratization of buying and selling, as social media has also done for content creation. Anyone can start a blog and share what they’ve written quickly and easily, so shouldn’t setting up a shop in order to sell something you’ve made be just as simple? Unlike online retailers like Etsy, Shopify has built Sello with social commerce at its core. The most direct purchase path of the future will be creating products, sharing them on social media and enabling a direct purchase from that point. In the future, Shopify hopes that novice Sello users become successful enough to start their own e-commerce business and migrate onto the full Shopify business platform.

Social media may be mature, but social commerce is still in a stage of growth and experimentation. The challenges of the future will be to make purchasing even more frictionless and leveraging social networks to better personalize product offerings. With innovations like social gifting and white label in-app social commerce for banks, it’s clear that our experiences on social media will likely involve much more buying and selling in the near future.

A Cautionary Fish Tale for Bankers


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Last September I was lucky enough to have been invited to give a presentation in Bali, Indonesia.It’s a beautiful island.As I was walking along the beach, enjoying the views and soaking up the atmosphere, I stumbled across a large, dead fish.The fish looked very healthy, apart from being dead.I imagine it had spent the last few days and months feeding around the coral reef off the shore, gradually swimming closer and closer to the shore and oblivious to the fact that the waves and tides were strong.It was fat, happy and finding lots more to eat.Then, on the day I was there, a great big wave washed this poor sucker onto the shore.Once on the beach, it probably wriggled a bit.It would have been desperate to get back into the sea, but _ too late.The beached fish had had its day and now it was a goner.

This may sound like a sad thing to share on a blog.It doesn’t cheer you up much does it?But the reason I’m sharing this is that I feel many of the large banks I deal with are like this fish.They’re bloated with capital. They have millions of customers. They have decades and, in some cases, even centuries of history. Their profits are reliable. Customers don’t leave. The internal structure is challenged, but it works. The products and services aren’t great, but they’re good enough.And they have a management team that is complacent.You get the idea.

Then some kind of disruptive technology comes along.Today we talk about digital. Five years ago we talked about mobile. Ten years ago we talked about the internet, and 20 years ago call centers.So what?For bankers, these are just just technologies they absorb and apply.

And yet I would argue to disagree. Twenty years ago I was presenting technology change to banks and explaining how it fundamentally challenged their core structures.This was when internet banking was first emerging and the challenge was that most banks had systems in place dating back to the 1960s and 1970s that were inflexible and hard to adapt to the internet era.They were ledger systems used for tracking debits and credits and designed for access via internal staff in branches.They were updated overnight through batch processing and had no real-time access.

The people I talked to knew this was a problem but didn’t want to touch or change their core ledger systems and ducked the issue.They did the same thing when mobile came around, which is why most mobile bank apps look like a debit and credit ledger, and they’re still ducking the issue today as we talk about digital.

But this is why I am so assertive that digital structures require digital foundations.If we live in an open sourced economy of APIs and apps, where anything and everything can plug and play, how can an old batch system interact?If we see digital as a key part of the fabric of finance, how can an organization with technologies built for physical distribution compete?If we have customers who want real-time access to cash flow forecasts, how can a system that keeps track of past transactions meet that demand?

This last point is illustrated well by a young chap in the U.K. named Ollie Purdue.Ollie is a 23-year-old university dropout who has raised millions of pounds to launch a new bank app calledLoot.When I asked Ollie how he thought he could launch a bank when he’s just a student, his reply was clear: “Because they didn’t give me or my friends what we wanted or needed.” He then told me that bank mobile apps all show what money has come into and out of the account, but he wanted to know what would come in and out of the account in the future.As a student, that’s important as it makes the difference between party night and study night.And the only reason banks have been offering these old transactional apps is because their core systems are built that way.

Bottom line?They say it takes 30 years for a technology to mature.For the past 20 years, digital technology has been evolving in banking.In another decade, it will have matured.It is a technology wave we have seen coming for a long time, and now that wave is building into a breaking wall on the shore as fintech, insurtech, regtech and digital hits home.That means the clever banks will feed further out to sea to avoid getting beached when the technology wave hits.Those banks are redesigning their systems for the open sourced networked age.Meantime, the banks resisting that change are the ones that are happily sitting with millions of customers, billions of capital and years of history.Like a happy fish feeding too close to shore, they don’t see the wave. And they will be a dead fish if they don’t change direction in time.That is why I shared my story of my fish in the opening.You still have time to see the wave and change course.Please do so now.