Why Blockchain Is Redefining Payments for Midsize, Community Banks

In the weeks following Silicon Valley Bank’s downfall, the 25 largest U.S. banks experienced a $120 billion increase in deposits, according to the Federal Reserve. Meanwhile, the nation’s midsize and community banks saw deposits fall by over $108 billion during the same time period. This represented the largest weekly decline of non-megabank deposits in history and set a perilous precedent for the health of the nation’s economic engine.

Unlike megabanks, midsize and community banks are people-centric and largely focus on empowering their local communities. The collapse of Silicon Valley Bank and Signature Bank has left pressing questions for businesses everywhere: Are community and regional banks in danger of becoming obsolete? Will the future be dominated by a handful of global institutions that are unresponsive to the needs of America’s entrepreneurs and small business community?

Smaller banking’s decline is not just limited to March: Community banks’ share in total lending and assets fell by 40% between 1994 and 2015, according to a 2015 paper; the country has lost over 9,000 smaller banks since 1993. For local communities, losing a community bank often means losing access to credit for that first-time small business or aspiring entrepreneur.

In times of crisis, it is often the community and regional banks, not the megabanks, that serve the vast majority of American businesses. During the coronavirus pandemic, community banks supplied a disproportionate share of Paycheck Protection Program loans, despite having budgets that pale in comparison to those held by the largest financial institutions. Additionally, they provide pivotal working capital to American businesses: community banks are responsible for 60% of all small-business loans and more than 80% of farm loans.

While America’s largest banks continue to dominate the market, the country’s smaller banking institutions are left with few options to compete with gargantuan research and development  budgets at megabanks.

While community banks are spending more to build out technological capabilities — as evidenced by cybersecurity and contactless digital payments growing by a median increase of 11% in 2021 — there is still a key technology that can transform their commercial banking capabilities and provide them with a competitive advantage versus the megabanks: private permissioned blockchain.

Private permissioned blockchain solutions operate in sharp contrast to traditional payments platforms, which are limited by high transfer fees, transaction size limits, 9-to-5 hours of operation and lengthy time delays. Payments made using private blockchain, on the other hand, enable community banks to offer their corporate clients secure, instantaneous transactions around the clock and at a fraction of the cost. This technology also enables banks to provide customized payments and financial services for every industry and for businesses of all sizes.

Fraud and regulatory efficiency are also key factors for banks to consider. Fraud losses cost banks billions of dollars every year, with a multiple of that figure spent preventing, investigating and remediating fraud. These costs are growing rapidly, and community banks lack the resources of the megabanks to address this growing issue.

In contrast, private permissioned blockchains are only accessible to authorized users, resulting in a dramatic reduction in fraud incidence, which correspondingly reduces the costs to prevent and respond to fraud cases. Critically important for smaller banks, private blockchain are also not expensive to implement and can be installed swiftly and efficiently on existing legacy core banking platforms.

Offering corporate clients a secure, efficient and customized payments and financial solutions 24 hours a day using private permissioned blockchain gives community banks the ability to capitalize on their key competitive advantage: close proximity to small businesses.

Business-to-business, or B2B, payments continue to hold a wealth of promise for community banks. Experts estimate that over 40% of all B2B payments are still conducted through paper checks, creating glaring inefficiencies and security issues plaguing community banks already struggling to compete.

One solution to close the gap between large banks and community banks is implementing emerging technologies that level the playing field without investing enormous amounts of capital to overhaul their entire tech stacks.

We are at a crossroads in U.S. financial history; the future of the country’s midsize and community banks hangs in the balance. Technology has proven to be the great equalizer, especially during periods of economic distress and financial uncertainty. Private permissioned blockchain adoption offers a lifeline that community banks desperately need in order to survive and prosper.

Creating Breakthrough Value: Crafting the Right Technology Strategy

Banking is becoming more invisible, more embedded and less conscious to consumers. Finding ways to capitalize on this banking shift will continue to be one of the industry’s defining evolutionary challenges.

And it all begins with crafting the right technology strategy.

In this episode of Reinventing Banking, a special podcast series brought to you by Bank Director and Microsoft Corp., we talk to Nikhil Lele, Global and Americas Consumer Banking Leader from EY. He brings his expertise as a former core technologist to expand on how banks can digitally transform by using the correct data.

Lele also touches on three fundamental pillars that banks can build on to drive digital adoption: growth and strategy ambition, incentivized leadership and talent, and having the right capabilities.

The business model of banking is changing. Listen here to find out how to stay proactive in that change.

This episode, and all past episodes of Reinventing Banking, are available on Bank Director.com, Spotify and Apple Music.

Unlocking the Opportunities of Open Banking

Whether banks know it or not, their customers may already be leveraging open banking technology.

If they pay friends using Venmo, transfer money from their account at your bank to websites like Robinhood to purchase stocks or use any other third-party financial applications that require a connection to their financial accounts, they are using open banking. Simply defined, open banking is a system that helps enable fast, innovative, and frictionless digital financial services.

Open banking creates a number of opportunities for consumers and businesses. Customer demand for seamless management of financial experiences has increased as they’ve grown accustomed to the benefits of personalized digital services. Research from Visa’s Open Banking Consumer Survey shows that 87% of U.S. consumers use open banking to link their financial accounts to third parties; however only 43% of U.S. consumers are aware that they are using open banking.

What is Open Banking?
Open banking is a system through which consumers or businesses authorize third parties, which can include any financial services organization like mortgage underwriter, banks or budgeting or trading app, to access their financial information or services. The third party may need the customers’ transaction or payment history or make a payment or requesting a loan on their behalf. Aggregators connect third parties to the financial accounts of consumers and businesses. When consumers or businesses share their financial data with third parties, the third parties can provide a number of products and services, including budgeting, credit checks or help initiating payments. Open banking enables consumers to connect financial accounts and share data securely.

How Does Open Banking Work?
Open banking is increasingly enabled by application programming interfaces, or APIs. Open banking APIs are specifically designed to link software systems and apps to securely communicate with each other. Financial institutions can establish these APIs to make consumer financial data available to third-party aggregators that serve as the bridge between account providers, like banks, brokerages and credit unions, and third-party applications, such as fintechs, merchants and other banks, that use this bank account data to provide financial services to consumers and businesses.

Open Banking Use Cases
A common, early use case is digitizing traditional financial management in a more efficient and secure way. But there is virtually no limit to the products and services that could be enabled by open banking.

Open banking enables financial institutions to improve their consumer experiences, illustrating the value of open access to financial information. Importantly, open banking could be a significant catalyst for financial inclusion and equity. The ability for all parties in the ecosystem to innovate and offer financial products to underserved communities could be considerably increased in a world where access to customer-permissioned information is easily available.

So while open banking is still in its early days, there are many potential opportunities and benefits that financial institutions should explore and consider offering to customers.

Opportunities — and Questions — Abound With Blockchain

Blockchain technology could add almost $2 trillion in gross domestic product to the global economy — and $407 billion in the U.S. — by the end of the decade, according to a 2020 PwC study. The digital ledger’s potential to build efficiencies, speed and trust isn’t limited to the banking industry, with PwC identifying five broad areas for transformation across various sectors, including improvements to supply chains, identity management to counteract fraud and faster, more efficient payments.

An increasing number of banks, large and small, are exploring opportunities for their institutions in a blockchain-based world. I focused on how two banks are using blockchain to build a payments niche in the third quarter 2022 issue of Bank Director magazine. New York-based Signature Bank launched a blockchain-based payments platform, Signet, in 2019. The $116 billion bank collaborated with Tassat Group on the initiative. Now, Tassat works with banks such as $19 billion Customers Bancorp, in Reading, Pennsylvania, to deliver payments services to commercial clients via a private blockchain. 

Another group of banks has taken a more collaborative approach, launching the USDF Consortium in January 2022. The five founding banks include $7 billion NBH Bank, the Greenwood Village, Colorado-based subsidiary of National Bank Holdings Corp., and $57 billion Synovus Financial Corp. in Columbus, Georgia, along with the blockchain technology company Figure Technologies and the investment fund JAM FINTOP. The group wants to make the industry more competitive with an interoperable, bank-minted stablecoin, a digital currency that’s pegged, one-to-one, to fiat currency or another physical asset.

Rob Morgan, who recently took the helm at USDF after leading innovation and strategy at the American Bankers Association, says that the banks are working together to answer key, competitive questions. These include philosophical ones, such as: “What is a bank’s role in a digital, tokenized economy?” They’re also answering questions specific to blockchain, including how can banks use a technology that has fueled the rise of cryptocurrency and apply it to traditional financial products? 

Creating a more efficient, faster payments system looks like the logical first step for these organizations, but other use cases could run the gamut from building better loan and identity verification processes to conform with know your customer and anti-money laundering rules. 

Given the nascency of blockchain applications, bank regulators are still getting up to speed. “From a legal and regulatory standpoint, [we are] working with the regulators to get them comfortable with this technology,” says Morgan. “Broadly, we have seen a changing posture toward cryptocurrencies for the regulatory agencies,” citing communications from the Comptroller of the Currency and the Federal Deposit Insurance Corp. that underscore expectations that banks work with their regulators before engaging in activity related to digital assets, including stablecoins. “We’re working really closely with the regulatory agencies,” says Morgan, to “make sure that they are totally comfortable with what we’re doing before moving forward and making these products live.”

For banks considering blockchain initiatives, Rachael Craven, counsel at Hunton Andrews Kurth, emphasizes the need for robust business continuity and incident response plans, as well as recovery protocols. “As with any emerging technology, operational failures, cyberattacks … should definitely be things that stay top of mind for banks,” she says. And working with a third party doesn’t let a bank off the hook for a compliance snafu. “Banks ultimately own the risks associated with any regulatory or compliance failures,” she says.

One potential murky area tied to blockchain centers around the technology’s immutability: Once the transaction data — or block — is added, it can’t be amended or reversed. Erin Fonté, who co-chairs Hunton’s financial institutions corporate and regulatory practice, sees potential conflicts with consumer protections under Regulation E, which governs electronic transfers of money via debit card, ATM or other means. “There’s nothing in Regulation E that exempts cryptocurrency transactions,” says Fonté. “You cannot forget the applicability of existing regulations to potential crypto or blockchain transactions.” 

Sara Krople, a partner at Crowe LLP, recommends that banks consider their current competitive strengths and strategic goals when discussing potential opportunities and risks with blockchain. Signature Bank started its Signet platform after consulting with its commercial client base; Customers Bancorp was pursuing a competitive moat with its niche serving companies in the digital assets sector. “Make sure it makes sense for you strategically and that you’ve thought through the risks,” Krople says. Many banks will partner with blockchain vendors, as Signature and Customers did. Banks should examine the controls and processes they’ll need, and determine whether they’re comfortable with the risk. 

Krople adds that banks should also identify one or more internal stakeholders who can take ownership for blockchain and bring the organization up to speed on its potential. Before Customers Bancorp launched its Customers Bank Instant Token [CBIT] platform, it formed an employee-level committee that spent months reviewing the associated risks. That resulted in a “best in class BSA review process” that provides speedy onboarding for clients while also ensuring the safety of the bank, according to Chris Smalley, the bank’s managing director of digital banking. 

Legal, risk and compliance processes should meet the needs of the emerging technology, says Krople. Among the questions banks should consider, she says: “Who’s going to monitor it for security? How do you know the transactions are process[ed] the way they’re supposed to? Who’s reading the smart contracts for you? You need somebody to be able to do those things.” 

A bank’s needs will differ by use case, Krople adds. “There’s a huge amount of opportunity, but you need to make sure people have thought through all the steps you need to implement a process.”

Why Nailing the Customer Experience Comes Down to Empathy

While this pandemic has brought many challenges to the financial industry, it’s also brought the opportunity of accelerating customer adoption of your digital banking services.

But it’s also presented an opening for your bank to build genuine customer loyalty and turbocharge your net promoter score.

Difficult times bring out the best and the worst in both people and companies. It’s easy to offer amazing service when things are going well, but it’s how you treat your customers during tough times that builds, or breaks, loyalty. American poet and civil rights activist Maya Angelou said, “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

Right now is your opportunity to make your customer feel valued, supported and secure. To do that, you need to be empathetic to your customers and your staff.

Consider your customers. They’re stressed.

This is a stressful time for them. Many are financially strained and need advice on the new programs and policies put in place to help them. They’re socially isolated and trying to avoid public places in an effort to stay safe. So, naturally, they’re increasingly banking through your digital channels — but that’s stressful too. How do I use mobile banking? Is it secure? How do I make sure I don’t send money to the wrong person?

To navigate these tricky waters, your customers need access to knowledgeable people who can guide them through your technology, and help them understand how to use your products and services.

Your frontline is your bank. It’s through your frontline that your customers experience your bank. And these are difficult times for frontline staff, too. Many are working from home, and have had to switch roles to handle the increased volume of remote support requests.

At the same time, they don’t have the in-person support of their colleagues, and they don’t have the same toolsets at their disposal. And new programs and policies are being rolled out faster than ever. All this at a time when many of them are experiencing personal difficulties.

You need to provide them with the knowledge, skills, and tools to deliver an exceptional customer experience. For the knowledge and skills part, they need practical training, which has been made more difficult by the pandemic. Instructor-led trainings are off the table, your learning management system could be better. You need an engaging and effective way to train remote staff so they can offer the right solution at the right time for your customers.

One of the biggest holes you need to plug is the lack of employee knowledge and familiarity with your digital products — the very ones you customers need to rely on right now. Many of your staff don’t bank with you, so they’ve never experienced your digital tools. If they’re not familiar with your tech, how can they be expected to promote and support it? To empower them, you need to train them on your tech and give them tools to help customers navigate transactions.

It all works together. The goal during this pandemic is to deliver an exceptional customer experience, to make customers feel secure and valued during a difficult time. Banks that can pull this off will build coveted long lasting customer loyalty. My contention is that empathy is the key to success.

Your customer experience is curated by your frontline employees. If you can remove stress from their jobs with training and support tools, they’ll be in a better position to help your customers. Investing in your frontline and showing them that you care about them will make them feel valued and help you build staff loyalty.

A well-trained, supported and secure frontline will do a much better job of helping your customers get through these tough times. Armed with the knowledge, skills and tools they need, frontline staff will be able make prescient recommendations that promote your products while making the customer feel confident and secure with their banking situation.

In the long run your customers won’t remember the details of each transaction and how it was handled. They’ll remember whether their bank added to their stress, or gave them one less thing to worry about during a trying time.

Turning Compliance From an Exercise Into a Partnership

The Greek philosopher Heraclitus once observed that no one can ever step into the same river twice. If these philosophers tried to define how the financial industry works today, they might say that no bank can ever step into the same technology stream twice.

Twenty-first century innovations, evolving standards and new business requirements keep the landscape fluid — and that’s without factoring in the perpetual challenge of regulatory changes. As you evaluate your institution’s digital strategic plan, consider opportunities to address both technology and compliance transformations with the same solution.

The investments your bank makes in compliance technology will set the stage for how you operate today and in the future. Are you working with a compliance partner who offers the same solution that they did two, five or even 10 years ago? Consider the turnover in consumer electronics in that same period.

Your compliance partner’s reaction time is your bank’s reaction time. If your compliance partner is not integrated with cloud-based systems, does not offer solutions tailored for online banking and does not support an integrated data workflow, then it isn’t likely they can position you for the next technology development, either. If your institution is looking to change core providers, platform providers or extend solutions through application programming interfaces, or APIs, the limitations of a dated compliance solution will pose a multiplying effect on the time and costs associated with these projects.

A compliance partner must also safeguard a bank’s data integrity. Digital data is the backbone of digital banking. You need a compliance partner who doesn’t store personally identifiable information or otherwise expose your institution to risks associated with data breaches. Your compliance data management solution needs to offer secured access tiers while supporting a single system of record.

The best partners know that service is a two-sided coin: providing the support you need while minimizing the support required for their solution. Your compliance partner must understand your business challenges and offering a service model that connects bank staff with legal and technology expertise to address implementation questions. Leading compliance partners also understand that service isn’t just about having seasoned professionals ready to answer questions. It’s also about offering a solution that’s designed to deliver an efficient user experience, is easy to set up and provides training resources that reach across teams and business footprints — minimizing the need to make a support call. Intuitive technology interfaces and asynchronous education delivery can serve as silent accelerators for strategic goals related to digitize lending and deposit operations.

Compliance partners should value and respect a bank’s content control and incorporate configurability into their culture. Your products and terms belong to you. It’s the responsibility of a compliance partner to make sure that your transactions support the configurability needed to service customers. Banks can’t afford a compliance technology approach that restricts their ability to innovate products or permanently chains them to standard products, language or workarounds to achieve the output necessary to serve the customer. Executives can be confident that their banks can competitively adapt today and in the future when configurability is an essential component of their compliance solution.

A compliance partner’s ability to meet a bank’s needs depends on an active feedback loop. Partners never approach their relationship with firms as a once-and-done conversation because they understand that their solution will need to adjust as business demands evolve. Look for partners that cultivate opportunities to learn how they can grow their solution to meet your bank’s challenges.

Compliance solutions shouldn’t be thought of as siloed add-ons to a bank’s digital operations. The right compliance partner aligns their solution with a bank’s overall objectives and helps extend its business reach. Make sure that your compliance technology investment positions your bank for long-term return on investment.

Radius Bank CEO Talks LendingClub Acquisition

Last week, a $1.4 billion asset community bank sent shockwaves through the financial industry when it agreed to be acquired by national fintech, LendingClub Corp.

What most people are talking about is what LendingClub will gain — access to a cheaper and more secure funding, freedom from loan sponsorship fees it pays to its current partner, Salt Lake City-based WebBank, and the ability to wade into other traditional banking activities. But what does the deal mean for the acquisition target, Boston-based Radius Bank? And what does it say about the future of banking?

I caught up with Mike Butler, president and CEO of Radius Bancorp, to find out. The following excerpts from our conversation are edited for brevity, clarity and flow.

BD: What does this deal mean for Radius Bank’s business model?
MB: We think we’re a fintech company with a bank charter. And LendingClub is obviously a fintech that’s thinking about banking. When you bring them together, it’s a nice combination of two companies looking to do the same thing.

Radius will have an opportunity to plug itself into the infrastructure of LendingClub and leverage a lot more of what we’ve built to provide both of our clients with better products and services. We will be operating out of our Boston location here in the Innovation District, not only driving our direct-to-consumer business, but also our commitment to fintechs on the strategic partnership side. As part of our early discussions with LendingClub,there was a lot of interest in our banking-as-a-service model, and we think that’s a great opportunity for us to expand further.

What a lot of people haven’t been paying as much attention to are our commercial lines of business and the opportunity for us to provide LendingClub with the diversification on the loan side that everybody’s looking for.

BD: You mentioned that Radius will be plugging into LendingClub’s infrastructure. What are your thoughts on how the companies will meld their teams?
MB: We’re going to help accelerate what is a fairly strong knowledge base inside LendingClub about regulatory and traditional banking. So we get a chance to leapfrog based on our work and our relationship with our regulator.

This is nothing like a traditional bank merger where cost saves are part of it. Things like overlapping technology and elimination of headquarters or branches are all distractions inside a traditional merger that keep you away from leveraging the beauty of a combination.We’ve got an acute focus on our objective of delivering superior products and services into the marketplace, and we won’t be distracted by those other issues, which will allow us to be more successful.

BD: I know Radius is run a lot like a tech company. Did that play a part in the relationship with LendingClub?
MB: It’s a big part of it. There is a cultural connection in any good merger. We’ve hired a lot of people from outside the banking industry and are teaching them banking. LendingClub has a whole group of technology people that they are teaching banking to as well. So, there’s a lot of cultural connections with what we’re trying to accomplish.

Beyond the cultural connection of people and mission, our national deposit gathering with industry-leading online banking and the awards we win for our product, make us a perfect match for a company like LendingClub, who also does business nationally.

As fintechs have evolved, they’ve done a great job in proving that they can take some banking products and produce them in a much more consumer-friendly way. But I think what we always thought is there would be a rebundling, in which companies would recognize that operating within a bank charter allows them more flexibility and profitability to deliver their products and services to clients. This deal reflects that; it’s the first step in the rebundling of financial services.

BD: How have regulators responded to the deal?
MB: LendingClub has been in the de novo application process for over a year, predominantly with the Office of the Comptroller of the Currency. And I think it’s safe to say that the regulators were positioned to issue a de novo charter to LendingClub, but LendingClub felt — and did feel all along — that an acquisition was a faster path. We were lucky enough to find each other over six months ago to start talking about this. And so a lot of work has been done behind the scenes.

In our discussions about the opportunity for a fintech to buy a bank, we’re extremely confident that the Federal Reserve and the OCC — and both of their offices of innovation — recognize the inevitability of this type of event and want to participate in helping the future and being a part of it, rather than not being part of it. So, we’re excited and optimistic about how the process will go.

BD: Do you think your model might be a clearer path to getting fintechs involved in traditional banking activities?
MB: I obviously do; we’re a fintech company with a bank charter. I always said, “Why wouldn’t a fintech company want to acquire a bank that had forward-looking people and technology as a path to create what we see as the future of the industry?”

You’ve got to be careful about the number of banks that may be out there that are really prepared to help accelerate a fintech to get to the next level. That will be the challenge with  people pursuing this avenue, and that’s why we’re excited to be the first one. But I do think the combination of fintechs and banks will become more and more prevalent.

BD: Is this the start of a new trend?
MB: I think it is, and I think you’ll see a couple of things happen. I can’t tell the future, but I think there will be several more banks that have considered developing more digital technology accept and move forward on doing that. And I think you will see more fintechs taking a look at banks as a way to rebundle and provide themselves with a path to profitability.

I do think there will be many that wait to see how the approval process takes place. I don’t think there’ll be a rush to it. Matter of fact, we like our competitive advantage. Another year with a competitive advantage would be good for us. So that’s OK by us.

BD: What does this deal say about the future of banking?
MB: It signals that technology has to become the number one component and driver to acquiring and servicing clients at the level that today’s consumer demands.

If banks haven’t been believing that technology is going to be a big player, then they need to start developing something quicker, rather than later, as it relates to their own business — to think about how they will participate in the future.

What I tell bankers is that transforming a bank into a digital platform is not an insurmountable task. I hope that I’ve proven to people that it can be done, and it can be done very successfully.

Staying Relevant in a Changing Industry



How can community banks choose the right path to ensure that their institution stays relevant in this era of technological change? In this video, Kevin Riley, president and CEO of $12 billion asset First Interstate BancSystem, shares with Barbara Rehm of Promontory Interfinancial Network how his bank is focusing on investments in its digital platform, and how he expects the financial industry to change in the near future.

Riley discusses:

  • Building a Vision for the Future
  • Investing in Digital Delivery
  • How the Industry Will Evolve
  • Competitive Threats

The People Who Plan to Change Financial Services


Changing-Banking-FXT.png

This article originally published inside The FinTech Issue of Bank Director digital magazine.

The world is filled with technology companies hoping to transform the financial industry. Of course, very few of them will. Not all ideas can overcome the substantial hurdles to become major commercial successes. We are not proposing here at Bank Director digital magazine to tell you who will be a success and who won’t be. But we do want to introduce you to some of the entrepreneurs who are proposing to reshape the world as we know it. These are people whose ideas are re-envisioning platforms and processes, people who are simplifying, unifying and upsetting conventional practices. These entrepreneurs really are shaking up traditional boundaries to help us all think about banking a little differently.

Christian Ruppe and Jared Kopelman

They are creating the driverless car of banking.

Using machine learning, this duo, who met as students at the College of Charleston, have built a platform for banks and credit unions to help millennials save without even thinking about it. Frustrated that fellow college students would get on a budget and then abandon it a few weeks later, 22-year-old Ruppe thought he could make the attainment of financial stability easier. Achieving financial health takes discipline and focus, like weight loss. But Ruppe reasoned that technology could help with financial health so it wasn’t so dependent on discipline and focus. If he could come up with a way to automate savings, debt payments and investments, many more people could realize the benefits of compounding over time to create wealth. “We are the self-driving car of banking,’’ Ruppe says.

There are several other automated savings applications on the market that use machine learning, such as Digit and Qapital, but most of those are sold directly to consumers, rather than through a financial institution. Monotto’s private label approach means the customer doesn’t pay for the product and never knows the platform doesn’t come from the bank. Monotto, a play on the words “money” and “auto,” can be integrated into mobile banking or online applications, sending well timed messages about refinancing the mortgage or buying a house, for example. Bear State Financial in Little Rock, Arkansas, a $2.2 billion asset bank, already has agreed to pilot the program. When customers sign up, the algorithm learns from their spending patterns and automatically pulls differing amounts from their checking accounts into their savings account using the bank’s core banking software, taking into consideration each customer’s transaction history. Individuals can set savings goals, such as buying a house or a car, and the platform will automatically save for them. For now, Monotto has received funding from friends and family, as well as an FIS-funded accelerator program. Eventually, the founders envision a platform that will also help you invest and pay down debt.

“You have someone who is solving a problem [for society] but figuring out how to solve it for the bank, as well,” says Patrick Rivenbark, the vice president of strategic partnerships at Let’s Talk Payments, a research and news site.

Zander Rafael

This student lender calculates the school’s ROI to determine eligibility for a loan.

With the rising cost of tuition, students who take out loans end up with an average of $30,000 in debt after college, leading to rising rates of delinquency. But what’s holding the schools accountable?

Alexander “Zander” Rafael, 32, and his team created Climb Credit in 2014 to service student loans based on the returns the college provides its graduates. This places Climb among a menagerie of fintech startups, like SoFi, LendEDU and CampusLogic, all trying to serve the student loan market.

Climb, which funds its loans through investors, stands out because it only works with schools that have a record of landing students jobs that “pay them enough to [cover the] cost of tuition,” says Rafael. In addition to evaluating the student, Climb also assesses the schools. If the institution passes Climb’s graduation and return on investment analysis, then its students are eligible for Climb loans and the school takes on some of the risk of the loan, receiving more money if more students pay them back.

Climb has grown by focusing on more non-traditional learning environments, like coding boot camps, where students invest $10,000 for a yearlong program to learn web development. According to Climb’s analysis, many of these students land jobs that pay up to $70,000. “The return was very strong,” says Rafael. Climb now works with 70 schools, including some two and four-year university programs.

Schools benefit because they can accept students that lack cosigners and who otherwise may have struggled to find a private loan elsewhere. Climb charges an average of 9 percent APR for the loans, but it can range from 7.59 percent to 23.41 percent.

With a $400 million lending capacity, Climb has raised a Series-A funding round of $2 million. But the idea has shown early promise, as Rafael adds that profitability is “within line of sight.”

Ashish Gadnis

Could this man be the Henry Ford of identity?

What if you could unlock trillions of dollars of wealth that could be associated with individuals around the globe? What sort of opportunities would be there for banks and businesses of all sorts? BanQu cofounder Ashish Gadnis saw first hand the problem facing billions of people worldwide who don’t have a bank account when he tried to help one woman farmer in the Democratic Republic of Congo. “The banker said, —We won’t bank her, but we’ll bank you, Mr. Gadnis,’” a native of India who grew up in poverty himself. “They wouldn’t recognize her identity,’’ he says, despite the fact that she owned a farm and had income every year from her harvest. Gadnis and cofounders Hamse Warfe and Jeff Keiser say this is a problem that confronts 2.7 billion people around the world who don’t have access to bank accounts or credit because they don’t have a verifiable identity. Gadnis, who wore a giant cross in lieu of a tie to a recent conference, promises to change all that by providing a way for people to create their own digital transaction-based identity through an open ledger system, or blockchain. Others in their network can verify transactions such as the buying and selling of a harvest, or the granting of a job. He estimates that approximately 5,000 people, some of them living in refugee camps in the Middle East, are using the technology to create a digital identity for themselves that could open up future opportunities to obtain credit and enter the global economy.

It’s not a nonprofit company, as you might think. BanQu is in the middle of a Series A venture capital funding round, and envisions banks and other financial institutions paying for the platform so they can access potential customers. It’s free to users. Like other tech entrepreneurs, he is optimistic about the potential of his platform, perhaps wildly so. “The key to ending poverty is now within our reach,’’ he says. But he has quite a few admirers, including Jimmy Lenz, the head of predictive analytics for wealth and investment management at Wells Fargo & Co. Gadnis has credibility, Lenz says, as he sold a successful tech company called Forward Hindsight to McGladrey in 2012. “When I think about Ashish, I think about Henry Ford. We think about Henry Ford for the cars. But really, his greatest achievement was the assembly line, the process.”

Nathan Richardson, Gaspard De Dreuzy and Serge Kreiker

These entrepreneurs provide anywhere, anytime trading for brokerage houses and wealth management firms.

All three of these individuals have well established backgrounds in technology, including Richardson, who was formerly head of Yahoo! Finance. Now, they are using application programming interfaces, or APIs, to try to make it easier to trade no matter the platform or where you are. Instead of logging into a brokerage firm’s website, Trade It sits on any website and lets you trade your brokerage account inside the website of a publisher or other company, such as Bloomberg. Although many banks have yet to sign up to use the app, the company is licensing the software to brokerage houses and Citi Ventures, the venture capital arm of Citigroup, invested $4 million into the company in 2015. “The thing that impressed us is taking financial services to our customers in the environment they are in, rather than expecting them to come to us,’’ says Ramneek Gupta, the managing director and co-head of global venture investing for Citi Ventures.

Publishers like the app because it doesn’t take the customer outside of their site. Brokerages like it because they can reach their customers anywhere. “If you think about 70 percent of consumers under the age of 40 who trust Google and Facebook more than their financial institution, why wouldn’t you want to put your product there?” says Richardson.

Gupta thinks this speaks to the future of financial services. “You have already seen it elsewhere,’’ he says. “You can order Uber from inside Google Maps.”

FinXTech Advisory Group Weighs in on Partnerships Inside and Outside Your Bank


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Tasked with providing the most relevant information affecting the financial industry, the FinXTech Advisory Group is comprised of a select number of technology startup founders, established technology providers, innovation leaders in banking, investors and government, and non-government policy leaders. As financial institutions work to find the best technology solutions, we asked them to weigh in on how banks can evaluate their internal resources to maximize opportunity for innovation. When they cannot address these challenges in-house, our advisors also share how fintechs can best approach a bank to make their case guided by a careful understanding of the existing system that is in place.

How can banks create an organizational culture that prioritizes technology initiatives?

  1. Focus on Challenges: The entire organization needs to be in sync with the challenges it is looking to address.
  2. Reward Innovative Thinking: BNY Mellon hosts —innovation jams’ while U.S. Bank holds —Pitch Factory’ competitions to promote innovative thinking. Rewarding innovation will ensure organizations are open to using new technology.
  3. Continue Reinventing: The key to promoting technology initiatives is to ensure there is no dependence on one particular system or technology. Be open to adopt new and better ways of doing things.

Ensure that executive and senior leadership teams have participants that are invested in understanding the potential of applied technology to address the operating and growth needs of the institution. Additionally, the institution should have the appropriate access to customer and market information, along with the analytical capabilities on staff to assess and understand what that data shows. The institution should make appropriate investments to secure its own technical future, not just outsourced to a vendor or processor.


Preaching A but rewarding B has been the modus operandi of too many financial institutions. If a bank truly wants to prioritize technology initiatives, it can reward those that embrace such initiatives 100 percent, regardless of whether or not those initiatives yield near-term results. A bank should also look to make sure that its board includes professionals with a technology background. A board that only includes technology “spectators” and not practitioners will have difficulty in promoting a tech-driven culture.

How can fintech companies begin to work with banks?

I believe it’s highly dependent on the work that is being contemplated. The legacy factors inside banks are what have given rise to fintech companies in many cases. The legacy environment in banks is something that fintech companies have to appreciate and work with, due to the structure, regulatory requirements and other parameters that exist in highly regulated environments.


I get 10-20 calls or emails from vendors daily trying to get a meeting. I would not try to work through the IT departments at community banks. I believe you need to find the “business” or “product” owners. They have an interest in learning more about the potential benefits of the solutions. I am much more open to meeting vendors at conferences or through their FinXTech relationships than through cold calls. If FinXTech or one of the reputable trade groups refers one of the vendors, I would take the call or meeting to try to help them network or provide advice.


Fintech companies need to look at the big picture and the individual needs at the same time. It is important for them to be self-aware: no matter how cool the fintech proposition, you will be one of the few hundred vendors with a small “v”—so deal with that reality dispassionately! Spend time with people at all levels in the organization. Understand the big and small pain points. Give it enough time. Most importantly, especially for small banks, don’t expect them to spend additional resources on integration with other third parties: try to provide a complete solution. Finally, put things in perspective: You may be the best, but you may not win.