The Blockchain Players: Understanding the Current Environment


blockchain-8-23-17.pngFinXTech Advisor Christa Steele has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is the final part in this series.

Part One
Part Two
Part Three

Banks may be slow to adopt blockchain in the long run but commercial clients may force their hand. Companies that use blockchain such as ConsenSys, Linux Foundation, Hyperledger, and R3 aren’t just working with banks. Kaiser Permanente, Toyota, Cargill, Amazon, and several state, local and foreign governments, among others, are looking to implement blockchain technology as well. The list of prospective commercial clients continues to grow daily.

Why Community Banks Must Pay Attention
It’s too soon for a community bank to dedicate precious and limited resources to blockchain beyond just staying educated. Blockchain, also known as digital ledger technology, will no doubt be led by and developed by the larger financial institutions and regulatory bodies. I believe a community bank’s first interaction with the technology will come from interactions through their correspondent banks in excess of $50 billion in assets or larger commercial clients with robust treasury management requirements.

Blockchain is potentially so transformative, banks are likely to see changes in how banking infrastructure works today in the areas of payments clearing and settlement; digital currencies; capital markets, including securities clearing, settlement and custody; digital identification; supply chain management and regulatory compliance.

Current Regulatory Vibe in the U.S. and Abroad
It is safe to say that blockchain technology is becoming mainstream. The Securities and Exchange Commission, Internal Revenue Service and several other regulatory and governing bodies acknowledge the technology and have adopted policy language surrounding blockchain, digital ledger technology and virtual currencies over the course of the last 12 months. The most notable foreign government to announce its acceptance of blockchain is Dubai which aims to be a “city built on blockchain.”

Have You Opened a Digital Wallet?
Though I am focused on the underlying blockchain technology instead of digital currency adoption, I do encourage you to understand how the digital wallet works. It will be increasingly important in the coming months and years as these consumer digital wallets become mainstream. Xapo offers an easy-to-use and secure bitcoin wallet. I found Xapo’s account opening process to be seamless and easy to use.

Resources for Staying up to Speed
I remain convinced our industry will continue to be disrupted by improvements in technology. Technology enhancements are moving faster today than ever before. We can thank IBM and others for leading this technology charge. As you look to stay educated, great resources to consider include a membership with the Digital Chamber of Commerce and Linux Foundation. For more information, you can also check out CoinDesk, a blockchain news source.

How to Get Private Equity Out of the Dark Ages

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Alternative investments are on a tear, and no asset class has seen more growth than private equity. According to a recent study by eVestment, assets under administration grew 44 percent from 2015 to 2016. This influx of capital has caused major ripple effects across the entire private equity landscape, with fund managers competing intensely to attract investor capital.

This competition has reinforced the importance of the overall experience that private equity managers provide to their investors, and as a result managers have increasingly been looking to their fund administrators for solutions.

Technology is widely seen as the solution to many of the challenges facing both private equity managers and fund administrators. Yet despite this consensus, “private equity is in the dark ages when it comes to technology” as Allison Piet, director of alternative investments accounting and reporting with insurer MetLife, puts it.

Private equity fund managers and fund administrators alike are finding themselves at a crossroads on two key issues:

  1. Delivering on investor demands for greater transparency and a more modern digital experience.
  2. Handling the operational burden of labor-intensive and margin-constraining processes that are insufficient to meet growing regulatory requirements.

A study by technology provider FIS, titled “The Promise of Tomorrow: Private Equity and Technology,” brings context to these two important issues:

Delivering on investor demands for a more transparent and modern digital experience.

One of the greatest obstacles to solving this challenge is the proliferation of systems that fund administrators and fund managers use across areas like accounting, reporting and document storage.

This multi-system approach adds a great level of difficulty to the process of collecting and preparing data required to provide investors with transparency. Further, maintaining multiple systems often proves to be arduous and time-consuming.

This demand for a more modern experience has placed tremendous pressure on fund administrators in particular, as their fund manager clients increasingly look to them to meet this need. Fund managers are sending a loud message by walking away from administrators that can’t help. In fact, according to a Preqin study, 28 percent of fund managers fired their fund administrator in the past 12 months.

This helps to explain why, according to the FIS study, 26 percent of respondents felt “threatened” by technology. That said, those that are leveraging the power of technology to improve their offerings are realizing that it can become a competitive advantage, as evidenced by the 74 percent of respondents that affirmed this in the study.

A quote from the FIS study makes this key point: “The private equity industry’s effortsto reinvent its relationship with technology also reflect recognition of the critical importance of technology to winning and retaining customers and to penetrating new markets.”

Handling the operational burden of labor-intensive and margin-constraining processes that are insufficient to meet growing regulatory requirements.

The private equity and the alternative investment industries have also been going through a metamorphosis over the past few years in the area of operations, driven in large part by the imposition of ever-increasing regulatory requirements. Compliance is the great equalizer, affecting all stakeholders in the industry from the fund administrator down to the investor.

These requirements become a business-breaking burden when operational efficiency is dictated primarily by the number of people that a company has available to help tackle them. The alternative investment industry is notorious for how heavily it relies on people to handle manual and repetitive tasks that should be automated. These are things like document preparation and distribution, tracking and receiving needed approvals, sending emails for notifications and more.

These manual tasks are exponentially more troublesome when legal and regulatory requirements come into play as most fund administrators have to add one full-time employee for every three or four new clients that they win.

This results in a vicious cycle for fund administrators as they far too often expand their budgets by adding additional staff instead of investing in technology that could solve their root problems.

Technology provides the clearest path to help private equity get out of the dark ages. This is the one solution that will help all key stakeholders improve the overall offering to investors without compromising their ability to build profitable businesses.

This quote from the FIS study encapsulates it best: “Firms that embrace this world of innovative technologies are likely to be the ones that win out in the marketplace.”

How Technology-Enabled Fund Administrators Can Help Family Offices


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The unprecedented spike in the number of millionaires in the United States has led to a significant increase in family offices as people of wealth are turning to Single Family Offices (SFOs) and Multi-Family Offices (MFOs) to help them manage their wealth. Many of these family offices offer a full suite of solutions including investing, budgeting, insurance, charitable giving and tax and legal services.

As has also happened with hedge and private equity fund managers, family offices (especially MFOs) will need to turn to fund administrators for help. Because many family offices have grown to become complex and sophisticated financial firms in their own right, and they have the same needs as other private fund managers do, including:

  • Report on investment performance in a digital format.
  • Provide transparency of data to comply with regulatory requirements.
  • Deliver operational efficiencies in such areas as investor communications, document distribution and more

There were almost 11 million millionaires in the U.S. in 2016, which was the most ever recorded, and a 4 percent increase over 2015. Depending on the source, the number of SFOs in the U.S. is anywhere from 3,000 to 6,000. Big dollars are at stake, with family offices controlling an estimated $4 trillion in investment capital worldwide. For context, private equity and hedge fund firms are estimated to have $5.7 trillion in investment capital.

Multi-family offices have also experienced strong growth of late. There are an estimated 1,500 MFOs with assets under management of nearly $450 billion, and their number is expected to keep growing as higher costs, lower margins and competition for capital are forcing them to search for operational efficiencies. These factors are also persuading SFOs to merge and become MFOs.

Due in part to the sophistication of the private equity and hedge talent migrating to these offices, along with the increasing deployable capital, family offices are investing more in complicated asset types including equities, real estate, fixed income and private equity, as well as hedge funds. Further, direct investments in these areas have increased dramatically, constituting close to 30 percent of an average family office portfolio.

As technological capabilities are inexorably linked to their key needs, family offices are realizing the importance of technology to their future success. They are also understanding that going it alone is often a difficult option.

Many family offices struggle to understand and manage complex technology offerings, while also meeting the need for deeper service capabilities across accounting, tax and more. Small in-house administrative teams at family offices quickly find themselves over whelmed as the combination of complex transactions and regulatory pressures prove too difficult for them to handle.

These factors will pressure family offices to seek out fund administrators that are best equipped to help address these evolving needs. Over the past few years, fund administrators have been going through a metamorphosis of their own, moving from viewing themselves as offering services focused solely on traditional accounting to becoming a key strategic advisor to private fund managers. This is true across not only accounting services, but also in complicated areas like investor relations, compliance and operations.

The demand for third-party validation of asset values and investment performance is also becoming a bigger factor for family offices, and fund administrators are uniquely positioned to deliver on this need as well.

Lastly, families can sometimes be fickle, and emotions tend to grow more intense as more money is at stake. Family members change through marriages, children, divorces and deaths. A strong and independent voice is critical to not only provide validation and transparency, but also objective guidance that can be taken at face value by family members. This factor increases exponentially with the addition of each family to a family office.

As family offices look to fund administrators to fulfill their needs, they must avoid the common trap of basing their selection mostly on the quality and pricing of the traditional accounting services offered by the fund administrator. Rather, family offices should give equal importance to the technological experience and capabilities of the fund administrator across areas like investor relations, operations and compliance.

Any family office that decides to go it alone will need to make sure to select the right technology provider that can help them not only with the front-end digital performance reporting and communications, but also with the operational middle and back-end of data preparation, analysis, and distribution.

Balancing Innovation and Risk Through Disciplined Disruption


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The digital disruption reshaping financial services mirrors the disruption brought about by Netflix, Uber, Lyft and Amazon in other sectors of the economy. What distinguishes financial technology companies is the financial and personal information their consumers entrust them with. The savviest fintech companies are those that employ discipline and structure to manage risk.

Many fintech companies adopt a fast-failure approach: move quickly and accept mistakes as necessary for innovation. Coordinating innovation with risk management might seem cumbersome. But if innovation is not integrated with effective risk management, companies risk running afoul of regulatory or compliance responsibilities.

One challenge fintech companies face is the sheer number of regulators that have rulemaking or supervisory authority over them due to unique business models and state level licensing and regulators. In the absence of a uniform regulatory scheme, there is widespread confusion about rules, expectations, oversight and regulatory risk. Many fintech companies and their banking partners remain uncertain about which laws and regulations apply or, most importantly, how they will be supervised against those rules.

A potential solution to this problem was the announcement in December 2016 by the Office of the Comptroller of the Currency (OCC) that it intended to create a special purpose national bank charter for fintech companies. The OCC aims to promote safety and soundness in the banking system while still encouraging innovation. A special purpose national bank charter would create a straightforward supervisory structure, coordinated by one primary regulator. This has turned out to be a controversial proposal, since the Conference of State Bank Supervisors has sued the OCC in federal court claiming that creation of a fintech charter would be a violation of the agency’s chartering authority.

Common Weaknesses
Executing an effective risk management plan in an innovative culture is challenging. Companies should be alert to the following common areas of weakness that can create vulnerability.

Compliance culture: Fintech companies often have more in common with technology startups than with financial services companies, which becomes particularly notable when maintaining a compliance management system (CMS). Compared with banking peers, many fintech firms generally have less mature compliance cultures that can struggle under increased regulatory scrutiny. The lack of a comprehensive CMS exposes companies to considerable risk, particularly as regulators apply bank-like expectations to fintech companies.

Risk assessments: Many companies fail to move beyond the assessment of inherent risk to the next logical steps: identifying and closing gaps in the control structure. Assessing the control environment and continually aligning an organization’s resources, infrastructure and technology to pockets of unmitigated risk is critical.

Monitoring and testing: Fintech companies can fail to distinguish between monitoring and testing, or understand why both are important. When executed properly, the two processes provide assurance of sound and compliant risk strategy.

Complaint management: Many organizations become mired in addressing individual complaints instead of the deeper issues the complaints reveal. Root cause analysis can help companies understand what is driving the complaints and, if possible, how to mitigate similar complaints through systemic change.

Corrective action: Finally, because of their fast-fail approach, fintech companies do not always follow up to remediate problems. Companies need feedback loops and appropriate accountability structures that allow them to track, monitor and test any issues after corrective action has taken place.

Strategies Across the Organization
Fintech companies should define clear and sustainable governance and risk management practices and integrate them into decision-making and operational activities across the organization. There are a number of actions that can help companies establish or evaluate their risk management strategies.

Assess risks: Because the fast-failure approach can ignite risk issues across the board, companies should evaluate their structure and sustainability of controls, the environment in which they operate, and their leadership team’s discipline level to measure the coordination of risk management and operational progress.

Identify gaps: Often, these gaps (for example non-compliance with certain laws and regulations, ineffective controls or a poor risk culture) represent the gulf between risks and the risk tolerance of the organization. A company’s risk appetite should drive the design of its risk management strategy and execution plan.

Design a road map: Whether a certain risk should be managed through prevention or mitigation will be driven by the potential impact of the risk and the available resources. Defining a plan within these constraints is important in explaining the risk management journey to key stakeholders.

Execute the plan: Finally, companies should deploy the resources necessary to execute the plan. Appropriate governance, including clear lines of accountability, is paramount to disciplined execution.

Successful companies align their core business strategies with effective risk management and efficient compliance. This alignment is especially important in the constantly changing fintech environment. Risk management and innovation can and should coexist. When they do, success is just around the corner.

John Epperson, principal with Crowe Horwath LLP, is theco-author of this piece.

What Venture Capitalists Predict in the World of Fintech


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Fintech is no longer the enemy of banking. While much of the talk among fintech companies just a year or two ago was that they wanted to disrupt the dinosaurs of banking, now the tone has changed, said several speakers at the FinXTech Annual Summit Wednesday in New York City.

“I’ve seen a slight change in the business model, where it’s now about —How can we partner with the banks?’’’ said Jim Hale, the founding partner of FTV Capital, a venture capital firm. “The tone has changed.”

The event gathered more than 200 entrepreneurs and bankers together to discuss partnerships, financial technology and trends. Hale was one of several venture capitalists at the conference giving his perspective on future trends in financial technology and the challenges of partnering with banks.

In fact, many of the biggest banks, some of them in attendance, such as Wells Fargo & Co. and Citigroup, have started venture capital arms to invest in fintech startups, so they can learn and influence the direction of future technology.

The most active banks investing in fintech startups are Banco Santander, Goldman Sachs, Citigroup, Mizuho Financial Group and JPMorgan Chase & Co., according to a new report from CBInsights, which tracks financial technology investments globally.

The report said global venture capital funding and deal activity fell slightly in the first quarter compared to a year ago, but rose compared to the fourth quarter of 2016, a trend that venture capitalist Ryan Gilbert, a partner at Propel Venture Partners, said was likely the result of uncertainty brought on by Brexit and the U.S. presidential election.

There were 226 venture-backed investments in financial technology companies globally in the first quarter of 2017, receiving $2.7 billion in funding, compared to 256 investments and $4.9 billion in the first quarter of 2016, according to CBInsights. In the U.S., there were 90 deals financed in the first quarter with $1.1 billion in cash, compared to 137 in the first quarter of last year at $1.8 billion.

Hale estimated that 90 percent of fintech companies focus directly on consumers, but he is more interested in funding solutions that solve the back-office problems and infrastructure needs of banks. He is also interested in solutions that manage data quicker, faster and cheaper than current solutions do.

Gregg Schoenberg, the founder of Westcott Capital, said he sees opportunity to make asset management more efficient, since the cost structure in these organizations is high. Banks also have a tremendous amount of data on their customers and could use that more effectively. Few other industries are required by law to collect as much data on their customers as banks are, which have to meet know-your-customer and anti-money laundering mandates, he said.

For examples of how technology can create more efficient processes, banks might look to successful companies such as Domino’s Pizza, which has a high stock price not based on the quality of its pizza, but by its distribution system, Schoenberg said. The company has a robotics division and 17 different ways to order a pizza, he added.

Gilbert is looking to invest in emerging technologies such as voice recognition and artificial intelligence, enabling capabilities like having conversations anytime with your “banker” in the form of a chat bot, for example.

“That’s really rethink and rebuild,” he said. Gilbert is often more excited about innovation happening outside the U.S., such as Singapore, a country with a lot of wealth and a stable, central regulator, and where banks are using chat bots and voice recognition software.

In the U.S., there are more hurdles, and multiple regulatory bodies for the banking industry, including federal and state agencies. Just yesterday, the Conference of State Bank Supervisors sued the Office of the Comptroller of the Currency over the latter’s proposal to regulate fintech firms.

Still, Gilbert is not pessimistic. “Now is not the time to give up,’’ he said in an interview yesterday. “We have 5,800 banks and there are a lot of opportunities to turn these institutions into great things. Technology is developing at such a rapid pace. The best is yet to come.”

Best of FinXTech Award Winners Announced at Nasdaq


award-winner-4-26-17.pngWhile many bankers still think of them as a source of competition, most fintech companies focus on providing solutions that will ultimately make financial institutions more efficient and profitable. True, some fintech firms do compete head-to-head with banks, but the great majority of them are more interested in partnering with banks in ways that will benefit both sides. In recognition of this growing trend towards cooperation, FinXTech.com recently held its 2nd annual Best of FinXTech Awards, which highlights collaborative efforts between banks and fintech companies working together in a successful partnership. From a pool of 10 finalists, three winners were chosen by this year’s FinXTech Advisory Group. The judging criteria were strength of integration, innovation and growth in revenue, reputation and the customer base that resulted form the project. The three teams, whose stories are detailed below, were honored today at the FinXTech Summit in New York.

USAA and Nuance

Headquartered in San Antonio, Texas, USAA wanted to develop a stronger relationship with current customers while also attracting new customers through the use of technology that would meet their needs and preferences. Since 2013, USAA has utilized Burlington, Massachusetts-based Nuance’s virtual assistant technology—called Nina—on its mobile banking app. Nina leverages natural language understanding and artificial intelligence to provide a proactive and personalized customer experience. In 2016, following Nina’s widespread adoption by USAA members on the mobile channel, the bank deployed Nina on its usaa.com website.

On usaa.com, Nina provides immediate, human-like support and assists USAA members with tasks such as activating cards, changing a PIN, adding travel notifications and reporting lost or stolen cards. Nina goes far beyond a static question-and-answer capability to deliver a more human experience that speaks, listens, understands and helps USAA members get things done efficiently. Nina responds to 1.4 million requests per month and eliminates the need for USAA members to sift through menus, ensuring that every interaction begins and ends with an effortless, natural experience. Through its partnership with Nuance, USAA is able to provide its customers with a compelling, multi-channel, automated customer service experience that keeps it ahead of the pack.

Scotiabank and Sensibill

In October 2016, Scotiabank—Canada’s third largest bank—and Sensibill, both of Toronto, launched eReceipts, a service that allows customers to store, organize and retrieve any receipt (paper or electronic) directly from Scotiabank’s mobile banking app and wallet. Scotiabank is the first of the Canadian Tier 1 banks to rollout the solution, and Scotiabank CEO Brian Porter has referred to it as a “game-changing application.”

Sensibill’s receipt processing engines uses deep learning and machine-learning to extract and structure information about each item, including product names and SKU codes. This adds clarity to otherwise vague transactions and reduces the friction associated with searching for a specific purchase. The service is also the first to offer consumers automatic matching of receipts to card transaction histories, which supports customers’ need for convenience and accessibility and enables Scotiabank to provide a seamless end-to-end payment experience.

Scotiabank customers use the service to track both personal and business expenses, with approximately 38 interactions with the service per month per customer. In the same way that online and mobile bill pay serves as a “sticky” product that retains customers who do not want to move their information to another bank, eReceipts has the propensity to reduce attrition. Forty-eight percent of eReceipts users use the app’s folders and notes to keep themselves organized, with captured receipts often being revisited. Not only does the app improve the customer experience, it also has the potential to lower the bank’s costs. For example, Scotiabank believes that 20 percent of credit and debit card queries could have been resolved through the Sensibill app, which ultimately should lead to a reduction in call center activity.

Green Dot Corp. and Uber Technologies Inc.

One of the biggest challenges workers in the gig economy face is gaining speedy access to their earnings. In March 2016, Uber, the transportation network company headquartered in San Francisco, and Green Dot, a prepaid card issuer located in Pasadena, California, launched a customized business version of Green Dot’s GoBank mobile checking account. Initially piloted in San Francisco and a few other cities, the solution provides Uber drivers with immediate access to their funds through a feature called Instant Pay. All drivers do is open a free Uber debit card from a mobile GoBank checking account and use this account to access their earnings instantly, for free, up to five times per day. Drivers are also able to use their Uber debit card for free at any of GoBank’s 42,000 ATMs spread across the country, and can also use it for transactions wherever Visa cards are accepted.

The pilot was so successful that in June 2016, Uber offered the solution to all of its drivers nationally, resulting in over 100,000 drivers signing up since August. That same month, in response to driver feedback and increasing demand, Uber and Green Dot announced it was expanding Instant Pay to work with not only a GoBank account, but almost any U.S. MasterCard, Visa or Discover debit card that is attached to a traditional checking and savings account. The expanded debit card program has scaled quickly, with millions of transactions having occurred between the August launch date and September 30, 2016.

The other seven finalists in this year’s Best of FinXTech Awards were IDFC Bank and TATA Consultancy Services, Franklin Synergy Bank and Built Technologies, National Bank of Kansas City and Roostify, Somerset Trust Co. and BOLTS Technologies, Toronto-Dominion Bank and Moven, Woodforest National Bank and PrecisionLender, and WSFS Bank and LendKey.

Recognizing How Fintech Companies Are Making Banks Better


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While the financial technology sector is still viewed as a source of competition, most fintech companies focus on providing solutions that will ultimately make banks more efficient and profitable. True, some fintech firms do compete head-to-head with banks, but the great majority of them are more interested in partnering with banks in ways that will benefit both sides. In recognition of this growing trend towards cooperation, FinXTech.com recently held its 2nd annual Best of FinXTech Awards, which highlights collaborative efforts between banks and fintech companies working together in a successful partnership. From a pool of 10 finalists, three winners were chosen by this year’s FinXTech Advisory Group. The judging criteria were strength of integration, innovation and growth in revenue, reputation and the customer base that resulted form the project. The three teams, whose stories are detailed below, were honored today at the FinXTech Summit in New York.

USAA and Nuance

Headquartered in San Antonio, Texas, USAA wanted to develop a stronger relationship with current customers while also attracting new customers through the use of technology that would meet their needs and preferences. Since 2013, USAA has utilized Burlington, Massachusetts-based Nuance’s virtual assistant technology—called Nina—on its mobile banking app. Nina leverages natural language understanding and artificial intelligence to provide a proactive and personalized customer experience. In 2016, following Nina’s widespread adoption by USAA members on the mobile channel, the bank deployed Nina on its usaa.com website.

On usaa.com, Nina provides immediate, human-like support and assists USAA members with tasks such as activating cards, changing a PIN, adding travel notifications and reporting lost or stolen cards. Nina goes far beyond a static question-and-answer capability to deliver a more human experience that speaks, listens, understands and helps USAA members get things done efficiently. Nina responds to 1.4 million requests per month and eliminates the need for USAA members to sift through menus, ensuring that every interaction begins and ends with an effortless, natural experience. Through its partnership with Nuance, USAA is able to provide its customers with a compelling, multi-channel, automated customer service experience that keeps it ahead of the pack.

Scotiabank and Sensibill

In October 2016, Scotiabank—Canada’s third largest bank—and Sensibill, both of Toronto, launched eReceipts, a service that allows customers to store, organize and retrieve any receipt (paper or electronic) directly from Scotiabank’s mobile banking app and wallet. Scotiabank is the first of the Canadian Tier 1 banks to rollout the solution, and Scotiabank CEO Brian Porter has referred to it as a “game-changing application.”

Sensibill’s receipt processing engines uses deep learning and machine-learning to extract and structure information about each item, including product names and SKU codes. This adds clarity to otherwise vague transactions and reduces the friction associated with searching for a specific purchase. The service is also the first to offer consumers automatic matching of receipts to card transaction histories, which supports customers’ need for convenience and accessibility and enables Scotiabank to provide a seamless end-to-end payment experience.

Scotiabank customers use the service to track both personal and business expenses, with approximately 38 interactions with the service per month per customer. In the same way that online and mobile bill pay serves as a “sticky” product that retains customers who do not want to move their information to another bank, eReceipts has the propensity to reduce attrition. Forty-eight percent of eReceipts users use the app’s folders and notes to keep themselves organized, with captured receipts often being revisited. Not only does the app improve the customer experience, it also has the potential to lower the bank’s costs. For example, Scotiabank believes that 20 percent of credit and debit card queries could have been resolved through the Sensibill app, which ultimately should lead to a reduction in call center activity.

Green Dot Corp. and Uber Technologies Inc.

One of the biggest challenges workers in the gig economy face is gaining speedy access to their earnings. In March 2016, Uber, the transportation network company headquartered in San Francisco, and Green Dot, a prepaid card issuer located in Pasadena, California, launched a customized business version of Green Dot’s GoBank mobile checking account. Initially piloted in San Francisco and a few other cities, the solution provides Uber drivers with immediate access to their funds through a feature called Instant Pay. All drivers do is open a free Uber debit card from a mobile GoBank checking account and use this account to access their earnings instantly, for free, up to five times per day. Drivers are also able to use their Uber debit card for free at any of GoBank’s 42,000 ATMs spread across the country, and can also use it for transactions wherever Visa cards are accepted.

The pilot was so successful that in June 2016, Uber offered the solution to all of its drivers nationally, resulting in over 100,000 drivers signing up since August. That same month, in response to driver feedback and increasing demand, Uber and Green Dot announced it was expanding Instant Pay to work with not only a GoBank account, but almost any U.S. MasterCard, Visa or Discover debit card that is attached to a traditional checking and savings account. The expanded debit card program has scaled quickly, with millions of transactions having occurred between the August launch date and September 30, 2016.

The other seven finalists in this year’s Best of FinXTech Awards were IDFC Bank and TATA Consultancy Services, Franklin Synergy Bank and Built Technologies, National Bank of Kansas City and Roostify, Somerset Trust Co. and BOLTS Technologies, Toronto-Dominion Bank and Moven, Woodforest National Bank and PrecisionLender, and WSFS Bank and LendKey.

Q&A: What Do Fintech Companies Commonly Miss?


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Banks are increasingly interested in having conversations with fintech companies and exploring the potential to partner with them. They have a lot to gain: better technology, increased efficiencies and improved market share. On the other hand, fintech companies don’t necessarily know how to best pitch their products and services to banks. Banking regulations are significant and can complicate any partnership. Large banking organizations are complex and difficult to understand. So we reached out to some of the banking experts speaking at the FinXTech Annual Summit in New York City April 26, with the goal of helping fintech companies improve their approach.

Q: How could fintech companies better sell to banks? What do they commonly miss?

A common problem is that they don’t understand the banks’ regulatory requirements for working with a so-called third party. Banks have to comply with extensive rules on managing the risk around third-party relationships. The fintech companies should read those rules based on the type of bank it is, should be ready to satisfy those questions, and explain how they are working with other banks to give each bank confidence. The bank is responsible for what the fintech does in most of these relationships, including meeting standards for cybersecurity, consumer protection, anti-money laundering and disclosures. Know what those rules are. Many fintechs are caught by surprise by the complexity and difficulty of satisfying these requirements.

Jo Ann S. Barefoot, CEO, Barefoot Innovation Group


What can your technology do now versus what is on the roadmap ahead? At some stage in the pitching process, you’ll need to review your financials, funding, staffing and sales pipeline. Be prepared with details for evaluation of things like what your cost model is and how you are positioned to compete and defend against copycats.—•?_Work your contacts. Avoid the urge to send an email blast to everybody you can get to via LinkedIn. This has a counter-productive effect on a company’s appetite to engage and is a colossal waste of resources for all. A more effective method is to approach a company through a referral from your investor partner, a board member or a key business or technology executive. Also, do your homework! Most larger companies have a wealth of public information in print, online and social media. Understand the company’s scale, business imperatives, risk appetite and more by doing your research ahead of time. Also know who you’re meeting with. Is it senior technology leaders? Their team? Know who they are, and tailor your message for the audience.

—Sherrie Littlejohn, executive vice president, Innovation Group at Wells Fargo &Co.


We see many fintech players running into the same roadblocks when selling into banks.At the core, it comes down to not understanding how buying decisions are made in these organizations.For the larger banks, the purchasing process can be complicated and involve a number of parties, including a procurement organization.We’ve seen these smaller start-ups going to procurement after a few demos, thinking that the deal is done, only to start a lengthy process of becoming an approved vendor for the bank.That is usually just the start of the journey.When dealing with smaller banks, the process may not be as involved and procurement may not be as central to the process.However, these banks usually require strong alignment across the leadership group•?__both business and technology•?__and, in many instances, eventually involving the CEO directly. Being smart about the decision process is key.

—Joe Guastella, managing principal, Global Financial Services, Deloitte Consulting


I would challenge the premise, for starters. As in any emerging relationship, the onus should be on both sides, and many banks probably have a lot of room for improvement in listening to startups. By the way, when we talk of fintech companies, banks are the original fintechs, right? That said, there are three basic hygiene tips to help any startup deal with a large, complex organization like a bank. First, “work like a headhunter”—do your homework, figure out who’s who, focus your firepower and engage tactfully. Secondly, be able to explain what actual bank problem you address. The best pitches abbreviate gloating about the merits of their product and give concrete examples of pain points they solve. Third, you would be surprised at how rare it is to find someone who can state clearly what they do or offer. You need to make it simple enough for a banker to understand!

—Andres Wolberg-Stok, global head of policy, Citi FinTech, Citigroup

A Roadblock That Ruins Futures


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Culture is one of the best things a bank has going for it. It’s also one of the worst.

While I am bullish on the future of banking as a concept, I am admittedly concerned about what’s to come for many banks who struggle with cultural mindsets resistant to change. Specifically, the same mindsets that helped weather the last few years’ regulatory challenges and anemic economic growth may now prevent adoption of strategically important, but operationally risky, relationships with financial technology companies.

Most banks don’t have business models designed to adapt and respond to rapid change. So how should they think about innovation? I will raise that question and others at our upcomingFinTech Weekin New York City startingtoday, a look at how technology continues to change the nature of banking. Those in attendance include banks both large and small, as well as numerous financial technology companies.

More so than any regulatory cost or compliance burden, I sense that the organizational design and cultural expectations at many banks present a major obstacle to future growth through technology.While I am buoyed by the idea that smaller, nimble banks can compete with the largest institutions, that concept of agility is inherently foreign to most legacy players. It doesn’t have to be. Indeed, Richard Davis, the chairman and CEO of the fifth largest bank in the country, U.S. Bancorp, shared at our Acquire or Be Acquired Conference in Phoenix last January that banks can and should partner with fintech companies on opportunities outside of traditional banking while working together to create better products, better customer service and better recognition of customer needs.

The urgency to adapt and evolve should be evident by now.The very nature of financial services has undergone a major change in recent years, driven in part by digital transformation taking place outside banking.Most banks—big and small—boast legacy investments.They have people doing things on multi-year plans, where the DNA of the bank and culture does not empower change in truly meaningful ways.For some, it may prove far better to avoid major change and build a career on the status quo then to explore the what-if scenarios.Here, I suggest paying attention to stories like those shared by our Editor-in-Chief Jack Milligan, who just wrote about PNC Financial Services Group in our current issue of Bank Director magazine. As his profile of Bill Demchak reveals, it is possible to be a conservative banker who wants to revolutionize how a company does business.But morphing from a low-risk bank during a time of profound change requires more than just executive courage. It takes enormous smarts to figure out how to move a large, complex organization that has always done everything one way, to one that evolves quickly.

Of course, it’s not just technological innovation where culture can be a roadblock.Indeed, culture is a long-standing impediment to a successful bank M&A deal, as any experienced banker knows. So, just as in M&A deals, I’d suggest setting a tone at the top for digital transformation.

Here are three seemingly simple questions I suggest asking in an executive team meeting:

  • Do you know what problems you’re trying to solve?
  • What areas are most important to profit and near-term growth?
  • Which customer segments are critical for your bank?

From here, it might be easy to create a strategic direction to improve efficiency and bolster growth in the years ahead.But be prepared for false starts, fruitless detours and yes, stretches of inactivity.As Fifth Third Bank CEO Greg Carmichael recently shared in an issue of Bank Director magazine, “Not every problem needs to be solved with technology… But when technology is a solution, what technology do you select? Is it cost efficient? How do you get it in as quickly as possible?You have to maintain it going forward, and hold management accountable for the business outcomes that result if the technology is deployed correctly.”

Be aware that technology companies move at a different speed, and it’s imperative that you are nimble enough to change, and change again, as marketplace demands may be different in the future. Let your team know that you are comfortable taking on certain kinds of risk and will handle them correctly. Some aspects of your business may be harmed by new technology, and you will have to make difficult trade-offs. Just as in M&A, I see this is an opportunity to engage with regulators.Seek out your primary regulator and share what you’re looking for and help regulators craft an appropriate standard for dealing with fintech companies.

Culture should not be mistaken for a destination.If you know that change is here, digital is the expectation and you’re not where you want to be, don’t ignore the cultural roadblocks. Address them.

Advice for Fintech Companies Working with Banks


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For any fintech company that is just beginning to work with banks, the experience can at times be frustrating if ultimately rewarding. Banking and fintech companies are worlds apart in their perspectives. One is highly regulated and brings a risk adverse mentality to many of its decisions (guess which one that is), while the other is populated by entrepreneurial startups that fit the very definition of 21st century capitalism. One often approaches technological innovation with reticence if not outright resistance, while the other is all about technological innovation.

With such a profound difference in their basic nature, it might seem amazing that they are capable of working together, and yet there are many examples (and the numbers are growing) of banks and fintech companies cooperating to their mutual benefit. From the perspective of the fintech company, it helps to understand how most banks approach the issue of working with outside organizations, and their views on technological change in general.

“Fintech companies and banks each come with their own set of perspectives, and if you can empathize with each other, then you can marry those perspectives effectively,” says Sima Gandhi, head of business development at Plaid Technologies, a San Francisco-based fintech company that helps banks share their data with third-party apps through the development of APIs, or application programming interfaces. “Investing time to understand each other takes patience, but the returns are well worth it.”

For fintech companies, that can begin with an understanding of how many banks view technological change. Chicago-based Akouba provides financial institutions with a secure cloud-based platform for the origination of small business loans. Loan underwriting as it is still done today at most banks is a time consuming and paper intensive manual process, and Akouba’s goal is to speed up the application, decisions and administrative process by digitalizing it from beginning to end. And yet, according to Akouba CEO Chris Rentner, some banks push back at the idea of weaning their loan officers off paper. “They’re like, —Hey, you know what? We’ll just take the digital application, and we’re going to print off those forms and type the information into our old systems,’” he says. “I find it interesting that as banks are trying to buy new digital onboarding software, they don’t want the true digital engagement with a borrower.” The lesson here for fintech companies is that some banks will say they want to embrace innovation, but may limit themselves in the degree to which they will change old habits.

It’s also important to understand that the native conservatism that banks typically bring to third-party engagements is partly the result of strict regulatory requirements for vendor management, including data security. In recent years, federal regulators have become much more prescriptive in terms of how banks are expected to manage those relationships. Because in many cases, the bank would be giving the fintech company some access to its customer data, thereby creating a potential cybersecurity risk, it will most likely want to fully investigate a potential partner’s own cybersecurity program. This could very well include an onsite visit and extensive interviews with the fintech company’s information security personnel.

The federal requirements for vendor management that banks must adhere to are publicly available, so fintech companies should know them. “Don’t go into a bank trying to sell a product before you’ve gone through and collected your vendor management information, and reviewed and understood the standard that banks are being held to,” says Rentner.

The final piece of advice for fintech companies is to practice patience without sacrificing your company’s core principals. Gandhi says that successful collaboration rests on “the art of the possible.” “It’s important to remember that every problem is solvable,” she adds. “When the conversations get tough and you’re running low on patience, keep in mind that you’re both there because there’s a common goal. And you can best achieve that goal together.”

But if patience and an honest search for common ground ultimately doesn’t lead to a solution, Rentner says that fintech companies should resist making material changes to their products if they don’t believe that’s the right thing to do. Banks are slowly beginning to change as a growing number of them see the need for technological innovation, even if the pace of change is still slower than what the fintech industry wants. “Hold to your guns,” Rentner says. “Move forward, continue to sell your product. If you have enough time with a good product, you will get customers.”