Reflections on Fintech at Bank Director’s Acquire or Be Acquired Conference


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I spent the first part of last week in Phoenix at the Bank Director Acquire or Be Acquired (AOBA) conference and as always I came away feeling like I knew more about industry conditions and expectations than I did when I got on the plane. If you are a bank executive, you should probably be there every year and may want to consider taking your team on a rotating basis every year. If you serve the industry in some way, you must be there as well. If you are, like me, a serious bank stock investor, you need to be there at least once every few years to stay on top of how bankers feel about their industry and how they plan to grow their banks.

The mood this year was much more upbeat than last year. All the concerns about low interest rates, regulatory costs and other potential headwinds have been blown away by a blast of post-election enthusiasm. Bankers were almost giddy in anticipation of higher rates, a stronger economy and possible regulatory relief. Everyone I talked with during my three-day stay was upbeat and enthusiastic about the future of banking.

There has also been a tremendous change in bankers’ view of fintech of late. Fintech companies have often been viewed as the enemy of smaller banks, and I have talked with many community bankers who are legitimately concerned about their ability to keep up with the new high-tech world. One older gentleman told me at Bank Director’s Growing the Bank conference last May in Dallas that if this was where the industry was going, he would just retire as there was no way he could compete with the upstart fintech companies.

Over the course of the last year, however, a different reality has begun to set in. Fintech companies have discovered that the regulators and bankers were not ready to concede their traditional turf and consumers still like to conduct business within the highly regulated, insured-deposit world of traditional banking. Banks have begun to realize that instead of relying on their traditional practices, much of what fintech companies are doing could make them more efficient and enable them to offer services that attract new customers and make those relationships stickier.

It has become apparent to many of the bankers I chatted with that fintech is not a revolution but an extension of changes that has been going on for years. Drive through bank branches and ATMs were also thought to be revolutionary developments when they were introduced, and today they are considered standard must-have items for any bank branch. Mobile banking is just another step along the evolutionary scale. More customers today interact with their mobile devices than through traditional means like branch visits, phone calls and ATM transactions. That’s not going to change, and bankers are adjusting.

Chris Nichols of CenterState Bank spoke in a breakout session about using fintech to improve the bottom line. He pointed out that if you used the traditional banking approach based on in-branch transactions it cost about $390 per customer per year to service your clients. Using the same cash required to build a branch and spending it to improve the bank’s mobile offering could bring the annual cost per customer down to just $20 a year. Processing a customer deposit costs the average bank about $2 if done in a branch and just $0.20 if done via a mobile phone. Nichols also suggested that acquiring a C&I loan customer could be as high as $14,200 when done via traditional banking methods, but the expense drops to just $3,060 if the transaction is done on a mobile platform.

The proper use of fintech, according to Nichols’ presentation, should also allow banks to lower their efficiency ratio and increase their returns on assets and equity. That is the kind of news that gets bank CEOs and boards excited about expanding the use of technology even if they still carry flip phones and use AOL for home internet.

While you can expect to see partnerships between bankers and fintech companies expanding in the future, bankers will use the technology that reduces costs or creates more revenue streams. They will offer the mobile payment and deposit services customers demand today. The litmus test for technology is, “Does it make or save me money or dramatically improve my customer relationship?” If the answer to these questions is no, then banks will pass on even the most exciting and innovative fintech ideas. They are bankers, after all, not tech gurus.

Community Banks to Fintech: We Need You


fintech-2-1-17.pngWhen Terry Earley, the chief financial officer of Yadkin Bank, a $7.5 billion asset bank in Raleigh, North Carolina, gets to work each morning, he sees an online dashboard showing him all the details of the loans in his bank’s pipeline, what is closing and when, and more. “If you don’t know the information, you can’t manage your company,’’ he says.

Upgrading from cumbersome Excel spreadsheets, he can easily see which lenders are pricing loans lower than others, and quickly react in terms of lender training and managing the bank’s loan portfolio. “A lot of times we try to manage [by] anecdote,’’ he says. “But what does the data tell you? The information is key.”

Like a lot of other community banks, Yadkin is increasingly using partnerships with technology companies to improve its operations and better meet customer needs. At Bank Director’s Acquire or Be Acquired Conference in Phoenix, Arizona, which wrapped up yesterday, Earley and other bankers talked about M&A and growth strategies, as well as how they were using technology to improve profitability and efficiency. In Yadkin’s case, the bank signed up with PrecisionLender, a pricing and profitability management platform, when it became a $1 billion bank several years ago. Then, it partnered with technology company nCino, which operates a secure cloud-based operating system, when it became a $4.5 billion bank, to get access to a quicker commercial lending origination platform. [For more on how banks are using the cloud, see Bank Director digital magazine’s Tech Issue story, “Banks Sail Straight Into the Cloud.”]

Even investors are getting excited about the plethora of off-the-shelf software available to help smaller banks become more competitive with larger institutions. Joshua Siegel, CEO of asset manager StoneCastle Partners, said he thinks banks have a lot of room to improve efficiencies with technology and take out back office costs, as well as offer better customer service. The software to do this is becoming increasingly available and affordable to do so. Siegel was happy to see banks as small as $150 million in assets offering online personal financial management tools superior to what regional banks are offering, because the regional banks are sometimes held up trying to develop their own software in-house.

While some financial technology companies are directly competing with banks for small business loans or payments, such as payments provider PayPal or online lender Kabbage, other financial technology companies want to sell their technology to banks.

Instead of only seeing the potential threats, there are reasons for the industry to see financial technology as a tool that can help them compete with bigger banks, which control most of the nation’s deposits. Small banks can use software to speed up their lending operations and the time it takes to open an account, and make the entire experience of doing business with a bank easier and simpler.

Somerset Trust Co. in Somerset, Pennsylvania, is using a fintech company called Bolts Technologies to quickly validate identities and open accounts for new customers. Radius Bank, a $1 billion asset bank in Boston, Massachusetts, is using a variety of partnerships with fintech companies to support its branchless bank, including a robo-advisor software company called Aspiration.

“From a cultural perspective, we look at whether they share our values,’’ said Radius Bank CEO Mike Butler. “It needs to be true partnership. If we’re just in it to try to make money off each other, then it’s not worth it. But if there is a benefit in terms of both of us wanting to create a better customer experience, then you have a great partnership.”

Do Bank Management Teams Need to Change?


technology-1-31-17.pngU.S. Bancorp’s retiring CEO Richard Davis said that just before walking on stage at Bank Director’s Acquire or Be Acquired Conference in Phoenix, Arizona, yesterday to give the keynote address, he had to check President Donald Trump’s twitter feed to make sure nothing had fundamentally changed about the banking landscape.

In a world when the president can change the rules of the game with a single tweet, sending a company’s stock price soaring or sinking in a single chirp, and where customer demands are changing in the face of game-changing technology, the management teams of the future may need to be nimbler than they might have imagined a decade ago.

Keeping up an environment like this is hard to do. But a growing recognition among many attending the conference was that banks were going to have to get more agile and accept changes to the way they do business.

Huntington Bancshares’ CEO Stephen Steinour said at the conference that he’s less worried about 10,000 fintech companies than by technology giants such as Apple and Google. “They have a capacity to invest at a level most of us in the industry can’t think about,’’ he said. “If we give up on payments, we have a huge challenge in the future.” Steinour said that online lenders have technology that banks can learn from. “Speed is important,’’ he said. “We are eminently capable of meeting those challenges and offering great customer service.”

Joshua Siegel, CEO of asset manager StoneCastle Partners, which invests in community banks, agreed that banks are probably more resilient than many people give them credit for. But he said that many banks have been slow to adopt technology and management teams are often a barrier to making changes.

U.S. Bancorp’s Davis said boards can have a role in this transition, by keeping up with changes in the industry and holding management accountable. Small banks have traditionally lagged big banks by a few years in terms of adopting technology, but in some cases this will no longer work, he said. “You can’t be OK with catching up two to three years later,’’ Davis said. “You can’t lag anymore.”

Some banks also are looking to hire workers who are comfortable with change, who are more comfortable with technology and could propel the bank forward. “We tell them the one constant here is change,’’ said David Becker, the president and CEO of the First Internet Bank of Indiana. “If you are uncomfortable with that, don’t waste your time or ours.”

But bank management teams might need to change how they operate, too. Younger generations are more racially and ethnically diverse, and they are more focused on having a career with a purpose, and more likely to leave when don’t feel their needs are met. Young people might be more receptive to banks as employers, despite the poor reputation banks received following the financial crisis, if they feel that banks are making a positive impact on their communities. Getting better at telling the story of how banks make a positive contribution to their economies is another way that bank management teams could influence the future of their institutions, Davis said.

Aside from being comfortable with a diverse workforce, Davis said he polled the executive team of the Minneapolis-based bank in terms of what they were looking for in future C-suite executives, and they came to the conclusion that a whole different set of qualities would be needed than what had been needed nine years ago. Back then, strategic thinking skills were a major requirement. Now, his bank also needs managers who are great communicators.

If you can’t sell your story, nobody cares,’’ he said. His bank is looking for highly ethical people who are lifelong learners, and are curious. “Do you care? Do you look forward to making a difference? Or do you just accept things?’’ he asked. “Well in that case, go away, because the world is curious now.”

Departing Administration Leaves Gift of Fintech Principles


fintech-1-16-17.pngIt may strike some as odd that President Barack Obama’s National Economic Council just published a “Framework for FinTech” paper on administration policy just before departing, but having been a part of several conversations that helped to shape this policy perspective, I see it from a much different angle. Given that traditional financial institutions are increasingly investing resources in innovation along with the challenges facing many regulatory bodies to keep pace with the fast-moving fintech sector, I see this as a pragmatic attempt to provide the incoming administration with ideas upon which to build while making note of current issues. Indeed, we all must appreciate that technology isn’t just changing the financial services industry, it’s changing the way consumers and business owners relate to their finances—and the way institutions function in our financial system.

The Special Assistant to the President for Economic Policy Adrienne Harris and Alex Zerden, a presidential management fellow, wrote a blog that describes the outline of the paper.

I agree with their assertion that fintech has tremendous potential to revolutionize access to financial services, improve the functioning of the financial system, and promote economic growth. Accordingly, as the fabric of the financial industry continues to evolve, three points from this white paper strike me as especially important:

  • In order for the U.S. financial system to remain competitive in the global economy, the United States must continue to prioritize consumer protection, safety and soundness, while also continuing to lead in innovation. Such leadership requires fostering innovation in financial services, whether from incumbent institutions or fintech start-ups, while also protecting consumers and being mindful of other potential risks.
  • Fintech companies, financial institutions, and government authorities should consistently engage with one another  . . .  [indeed] close collaboration potentially could accelerate innovation and commercialization by surfacing issues sooner or highlighting problems awaiting technological solutions. Such engagement has the potential to add value for consumers, industry and the broader economy.
  • As the financial sector changes, policymakers and regulators must seek to understand the different benefits of and risks posed by fintech innovations . . .  While new and untested innovations may increase efficiency and have economic benefits, they potentially could pose risks to the existing financial infrastructure and be detrimental to financial stability if their risks are not understood and proactively managed.

A product of ongoing public-private cooperation, I see this just-released whitepaper as a potential roadmap for future collaboration. In fact, as the fintech ecosystem continues to evolve, this statement of principles could serve as a resource to guide the development of smart, pragmatic and innovative cross-sector engagement much like then-outgoing president Bill Clinton’s “Framework for Global Electronic Commerce” did for internet technology companies some 16 years ago.

Departing Administration Leaves Gift of Fintech Principles


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It may strike some as odd that President Barack Obama’s White House’s National Economic Council just published a “Framework for FinTech paper on administration policy just before departing, but having been a part of several conversations that helped to shape this policy perspective, I see it from a much different angle.Given that traditional financial institutions are increasingly investing resources in innovationalong with the challenges facing many regulatory bodies to keep pace with the fast-moving fintech sector, I see this as a pragmatic attempt to provide the incoming administration with ideas upon which to build while making note of current issues.Indeed, we all must appreciate that technology isn’t just changing the financial services industry, it’s changing the way consumers and business owners relate to their finances—and the way institutions function in our financial system.

The Special Assistant to the President for Economic Policy Adrienne Harris and Alex Zerden, a presidential management fellow, wrote a blog that describes the outline of the paper.

I agree with their assertion thatfintech has tremendous potential to revolutionize access to financial services, improve the functioning of the financial system, and promote economic growth. Accordingly, as the fabric of the financial industry continues to evolve, three points from this white paper strike me as especially important:

  • In order for the U.S. financial system to remain competitive in the global economy, the United States must continue to prioritize consumer protection, safety and soundness, while also continuing to lead in innovation. Such leadership requires fostering innovation in financial services, whether from incumbent institutions or fintech start-ups, while also protecting consumers and being mindful of other potential risks.
  • Fintech companies, financial institutions, and government authorities should consistently engage with one another… [indeed] close collaboration potentially could accelerate innovation and commercialization by surfacing issues sooner or highlighting problems awaiting technological solutions. Such engagement has the potential to add value for consumers, industry and the broader economy.
  • As the financial sector changes, policymakers and regulators must seek to understand the different benefits of and risks posed by fintech innovations.While new and untested innovations may increase efficiency and have economic benefits, they potentially could pose risks to the existing financial infrastructure and be detrimental to financial stability if their risks are not understood and proactively managed.

A product of ongoing public-private cooperation, I see this just-released whitepaper as a potential roadmap for future collaboration.In fact, as the fintech ecosystem continues to evolve, this statement of principles could serve as a resource to guide the development of smart, pragmatic and innovative cross-sector engagement much like then-outgoing president Bill Clinton’s “Framework for Global Electronic Commerce” did for internet technology companies some 16 years ago.

Want to Go Fast, Go Alone. Want to Go Far, Go Together.


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There was a plaque in my father’s office that is attributed to the late David Ogilvy, often called “The Father of Advertising. It read, “Search the parks in all your cities, you’ll find no statues of committees,” which I always interpreted to mean, “YOU need to make something happen; don’t wait on others to get going.”

But going it alone in the banking industry is extremely difficult because of the complexities around regulation, underwriting, competition and the thousands of vendors that serve it. Combine that with record breaking investment in financial technology and the next few years may very well serve as our “big bang” and usher in a new era of banking.

I’ve observed how companies seeking to make a real impact within the industry rarely do it alone. While we need committees in business, maybe what we need more is a “virtual committee,” or community of fintech players, to better understand the nuances within the landscape. The value of this fintech community is to provide industry intelligence, serve as a sounding-board for new ideas and foster relationships to move you faster in achieving your organizational goals.

The fintech community should also include thought leaders, published research and reports—and most importantly, peers from outside your organization. Even competitors can be valuable resources for your company and contribute to your personal development.

The banking segment will likely see more action than the rest of the economy. In the future we will probably witness the following:

  • The adoption of a new fintech charter
  • A relaxation of the regulatory burden
  • Improved bank earnings, helped in part by rising interest rates
  • Increased customer expectations

Individuals and organizations that embrace the industry as a community and foster relationships will have a competitive advantage.

Why Dramatic Change in Banking is Hard
Many of the products and services that banks offer are mature, even bordering on commodity status. Technology advances we see in our industry tend to fall into a few categories:

  • How banks deliver products (channel)
  • Customer insights and recommendations (managing their money better)
  • Ease of doing business (speed, simplicity and service)
  • Tweaks to traditional business models (sources of funding, hyper-focused segmentation)
  • Operational improvements (automated processes, enhanced security and improved regulatory compliance processes, to name three)

Many of the platforms we used today are in the process of being either rewritten or replaced. According to one vendor, the life cycle of fintech moving forward will be five years or less on average.

The technology that the vast majority of financial institutions use today is a result of decisions spanning over many years and engagements with a lot of vendors—typically from dozens to hundreds of relationships.

Media, fintech executives and investors have a tendency to focus on new and shiny technology without an appreciation of how hard it is to run a technology company in the financial industry, much less what it takes to achieve long-term success.

Agents For Change
Vendors looking to grow their businesses seek focused education and networking opportunities. Organizations such as the Association for Financial Technology, or AFT, enable vendors to learn about technologies, which organizations are doing well, and gain industry insights that help provide a perspective for decision-making. This particular fintech community includes companies of all sizes that have implementations in virtually every U.S. financial institution.

Ultimately, people do business with people, and fintech advances won’t happen until two people or two companies agree on a shared vision. Finding your community, and being a good citizen within it, will enable you to grow professionally and help your company succeed and make a positive impact.

Additional resource: “What You Need to Know About AFT Fall Summit 2016” by Kelly Williams.

Four Tips for Choosing a Fintech Partner


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Over the last three years we’ve implemented five strategic partnerships with fintech companies in industries such as mobile payments, investments and marketplace lending. In doing so, we’ve developed a reputation of being a nimble company for fintechs to partner with, yet we remain very selective in who we decide to work with.

We are very often asked–in places like the board room, at conferences and at networking events, how we choose what fintech companies to work with. It is a great question and one that needs to be looked at from a few angles. If you’re a financial institution looking to potentially begin partnering with fintech companies, below are some criteria to consider when vetting an opportunity.

A Strategic Fit: How does this relationship fit into your strategic plan? Finding a fintech that helps advance your goals may sound obvious, but it can be easy to get caught up in the fintech excitement, so don’t allow the latest fad to influence your choice of a partner. Don’t lose sight of your vision and make sure your potential partners buy into it. It’s better to have a few, meaningful partnerships than a host of relationships that may inadvertently distract you from your goals and spread your resources too thin.

Cultural Alignment: Make sure to do some research on the fintech’s management team, board of directors and advisory board. How do they–and their company’s mission-fit with your organization’s mission? Do you trust their team? Our CEO, Mike Butler, likes to say that we have a culture of trying to do things, not trying to NOT doing things. That’s important to us, and we want to work with teams that think similarly. Spending time together in the early stages of the relationship will help set the stage for a solid partnership in the future.

A Strong Business Plan: Is the company financially sound? Is their vision viable? Back to earlier commentary on not getting too caught up in the latest technology trend, consider testing the business idea on someone who isn’t a banker, like a friend or family member. While you might think it’s a great idea, does it appeal to a consumer that is not in our industry? If the business plan passes muster, another issue to consider is the fintech’s long-term plan and possible exit strategy, and the impact it would have on your business if the relationship went away. It’s important to understand both the fintech’s short- and long-term business plans and how those will impact your bank’s balance sheet and income statement today and in the future.

Compliance Buy-In: Does the fintech team appreciate the importance of security? Do they appreciate the role of regulation in banking and finance? Do they understand they may need to modify their solution in light of certain regulations? We know fintechs can sometimes look at banks with impatience, feeling that we’re slow to move. And while some might move at a slower pace than other, we banks know that there are good reasons to proceed cautiously and that compliance isn’t a “nice to have” when it comes to dealing with other people’s money. We are never willing to compromise security and are sure to emphasize that early in the conversation. It’s critical to find a partner with a similar commitment.

We’re in an exciting time; the conversations on both the bank and fintech sides are increasing about collaboration rather than competition. Considering criteria like the above will help banks take advantage of new possibilities in a meaningful way.

Fintech Lenders Under Fair Lending Scrutiny


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One of the many concerns surrounding fintech lenders is that they are not as tightly regulated as traditional banks and are not bound as firmly by the provisions of the Fair Lending Act. The Federal Trade Commission has expressed concerns about many of the lending practices of fintech companies, saying in a recent statement that “the use of big data analytics to make predictions may exclude certain populations from the benefits society and markets have to offer.” Using big data to cherry pick loan candidates may be seen as discriminatory and could end up increasing regulatory scrutiny of fintech lenders as some see their underwriting practices as not being much different than redlining.

Gerron S. Levi, the director of policy and government affairs for the National Community Reinvestment Coalition, also expressed concerns about the practices of the fintech lenders in recent testimony before the House Subcommittee on Financial Institutions and Consumer Credit, telling legislators “We see echoes of the early days of the subprime mortgage boom, in which rapidly growing nonbank mortgage lenders innovated in the worst possible way by loosening credit standards, layering significant and multiple forms of risk, and causing financial harm to borrowers who could ill afford to repay the loans. If lightly regulated nonbank small business lenders, including fintech firms, are left unchecked, our fear is the impact may be the same: millions of small businesses stuck with exploding loans they can’t afford, and the American taxpayer left on the hook to clean up the mess.”

While the ability of fintech lenders to quickly process and fund loans may be seen as an improvement over the much slower process used by most banks, and is also seen by many as an opportunity to expand credit offerings to a wider percentage of the public, there are drawbacks. The algorithms that are used to find the very best borrowers would stand a good chance of being found to be discriminatory under the requirements of the Fair Lending Act. And some fintech lenders are targeting consumers with low or no FICO scores and charging extremely high-interest rates—which some regulators consider to be a form of predatory lending.

We already see the various regulatory agencies take a deeper look at the fintech lending industry. The Consumer Financial Protection Bureau in July entered into a consent order with Flourish, a fintech lender that the agency said had violated several regulations including the Consumer Financial Protection Act and the Fair Credit Reporting Act. The order required Flourish to deposit $1.93 million in an escrow account to repay customers, and the company was fined an additional $1.8 million.

The biggest problem facing fintech lenders is that most of them have not yet been all the way through a credit cycle, so we have no idea how they will react when an economic event causes liquidity to dry up. They do not have access to depository funding and rely on credit facilities, whole loan sales and securitizations to fund originations. These sources of financing have a tendency to evaporate when markets become volatile, and many fintech lenders could be forced to seek partnerships with other lenders or the banks themselves.

In many ways, that would be the perfect solution for this potential liquidity problem. Community and regional banks are very interested in adding new technology that will allow them to offer more online products and services as well as cut costs and speed up loan processing. Banks are actively looking to accomplish this by partnering with, or in some cases acquiring, fintech lenders. According to a recent survey conducted by the law firm Manatt, Phelps & Phillips, 88 percent of those surveyed think that in a decade the banking world will be one where traditional banks are partnering with fintech companies in a mostly collaborative environment

Fintech lenders choosing to partner with banks will come under closer regulatory scrutiny as their lending practices will have to be in line with the regulations under which banks operate. Regulators have also expressed growing concern about data security, and that will be a large issue that both the banks and fintech companies will have to address.

Regulatory challenges are going to continue to increase for fintech lenders. For many of them, the most practical course of action will be to partner with community and regional banks. For that to happen, however, their strategies and operations will have to be modified so the marketing programs and loan approval algorithms have no hint of discriminatory or predatory lending practices.

Fundbox: Friend or Foe


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For small businesses and freelancers, successfully performing work for customers and clients is only half the battle. Oftentimes, businesses wait up to 90 days to receive payment for their outstanding invoices. This delayed cash flow can create a variety of problems, especially when it comes to covering overhead expenses like rent and payroll.

That’s why Eyal Shinar developed the Fundbox software service, to help small businesses fix their cash flow problems as it relates to outstanding invoices. Fundbox is the leading cash flow optimization platform for small businesses, and who better to start a fintech company focused on this problem than someone who learned it at his mother’s knee? Shinar’s mother was a small business owner, so growing up he saw the pain and frustration that delayed payment of invoices can cause. According to a recent report, 82 percent of small businesses fail due to poor cash management. Where some see problems, others see solutions, and that’s where Fundbox comes in.

The process is straightforward. Business owners simply connect their existing accounting software to Fundbox and submit their outstanding invoices for immediate reimbursement. The business owner incurs a small fee for this service and they are given up to 24 weeks to pay Fundbox back.

For banks looking to offer new or better services to small business clients and freelancers, though, is Fundbox a good partner? Let’s look a little closer.

THE GOOD
Small business accounts are a much coveted group for banks, so providing new tools to improve service and/or relationships with this group should be of interest area to most any financial institution. The fact that Fundbox already has some traction in the small business space should be a good indicator for banks that the service they provide—instant cash flow—is a needed service for this group.

Once a small business owner submits an invoice to the Fundbox platform, they are typically paid within one to two days. Fundbox connects easily with most existing accounting platforms that small businesses are already using, such as QuickBooks, Freshbooks, Xero, Wave and Sage One, so there is very little to do in terms of importing data. Fundbox connects with a few simple clicks and pulls any outstanding invoices that business owners might want to turn into cash. Also, when the user signs up for their account, Fundbox uses big data and algorithms to quickly determine the consumer’s financial health rather than putting them through a lengthy application and approval processes.

The pricing model is simple and transparent. For an invoice of $1,000, the fee is $48 per week over 24 weeks, or $89 per week over 12 weeks. Fees are reduced if the business pays back what it owes prior to the deadline, which is a good incentive to keep Fundbox’s own cash flow looking good, although they have no shortage of funding—another point that might give banks some comfort in partnering with the company.

THE BAD
While the Fundbox fee structure is quite straightforward and transparent, it’s also relatively expensive and can really add up over time, especially for businesses that regularly choose the 24-month financing option. After you do the math, the annual percentage rate for Fundbox repayments can range anywhere from 13 percent to 68 percent. Fundbox also places a $100,000 limit on invoices that it will fund, so it isn’t an option for companies seeking to turn accounts receivable for amounts larger than that into cash.

While Fundbox is compatible with most of the common accounting software mentioned earlier, small businesses that use less common accounting packages or Excel spreadsheets can’t utilize its service. Other drawbacks are that Fundbox doesn’t provide cash for past-due invoices, and the approval process for credit limit increases can take some time. So while the service is helpful in many use cases, it certainly doesn’t match every situation. Finally, Fundbox is rolling out additional credit products as well, which could increase its presence as a possible competitor in the banking space.

OUR VERDICT: FOE
Fundbox offers an important service to small businesses and entrepreneurs, and does so more conveniently than most banks do today. At a time when so much emphasis is being placed on the customer experience, banks should be taking notice of this heavily-funded bank alternative. If an entrepreneur has outstanding invoices and needs cash to keep the lights on, their only option with traditional banks is to apply for a small business loan, or to go to their credit card company, which charges even higher rates than Fundbox. Furthermore, between the application process, credit checks and agreeing upon collateral, it can be weeks or months before businesses see a penny of the cash they need. For this reason, I applaud what Fundbox is doing, and I think it is certainly a —friend’ to many entrepreneurs in their times of need.

As Fundbox encourages more and more small business owners to come to them for cash, though, this obviously chips away from the bank’s importance and its relationship with their small business clients—a relationship they certainly don’t want to lose. And to date, Fundbox cannot boast of any existing bank partnerships or list banks as an area of interest. Of course, if this was to change, we might reconsider our foe designation.

In the meantime, banks would be wise to understand why entrepreneurs are using services like Fundbox, and how they might better address this particular need, whether it’s partnering with fintech companies, investing in new solutions or building them internally. In short, business owners have enough things to worry about, and getting paid on time doesn’t have to be one of them. Who can blame small business owners for looking outside their banking relationship for help?

Proposed Fintech Charter Could Sprout Waves of U.S. Digital Banks


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I’ve been critical of the U.S. regulators for some time, as the complex mixture of different state, national and federal licensing boards makes it difficult for fintech innovations to break through. This is pretty obvious when you think that there is not a single new digital bank launched in the U.S., when there are dozens across Europe. There, you have N26, Solaris and Fidor in Germany; Knab and Bunq in the Netherlands; and a whole range of new startups in the U.K. including Atom, Starling, Monzo, Loot and Tide. Can you name a new U.S. digital bank?

Well, you may well be naming a few quite soon. Recognizing the innovation in the EU and U.K., the Office of the Comptroller of the Currency (OCC) has announced that it will support fintech innovations from neobanks to special banks, and creating breakthrough possibilities for firms in digital currencies like bitcoin. This is pretty radical, and overrides a lot of the barriers to breaking into U.S. banking today if approved, as the idea is currently under consultation.

The idea is that fintech startups could get licensed by the OCC under the National Bank Act and given a special purpose national bank charter. This is a license used by several firms already, including some trust and credit card banks, and would allow fintech firms to operate nationally without all the overhead of dealing with state regulations. That is a serious breakthrough for American markets and fintech companies if implemented, as one of the reason that you don’t have national neobanks startups in the U.S. is the complex spaghetti of regulations and authorities you have to deal with to get started.

Financial Innovation Now (FIN)—a public policy coalition of Amazon, Apple, Google, Intuit and PayPal—has been one of the key groups applying pressure to the OCC for these reforms. Back in the summer, the consortia produced a fascinating report on the complexity of U.S. financial regulations. As cited by these internet giants, compliance requirements constitute a significant market barrier, particularly for new entrants, and can serve to protect incumbent providers from new competition. Obviously, companies like Amazon and their brethren are listened to and the OCC has responded. Equally, FIN has been calling on the new administration to focus on fintech. At the end of November, the group called on President-elect Trump to embrace technology’s potential to make financial services better for American consumers and small businesses in a letter.

A key paragraph in that letter stated:

Technology and the internet are changing the way consumers and small businesses manage money, access capital, and grow commerce. Financial regulators around the world are paying close attention to this transformation and actively working to adopt policies that attract investment and create jobs in these new services, ultimately benefiting their own consumers and businesses. While America’s financial regulators and Congress have recognized this potential on a bipartisan basis, more leadership and federal coordination is necessary.

What FIN is getting at in this letter is that some markets—Germany, Britain and Singapore in particular—are a hotbed of financial innovation through technology. Does the U.S. want to fall behind? I don’t think so, and Amazon, Apple, Google, Intuit and PayPal are on the campaign trail to make sure it doesn’t. With the OCC and, hopefully, an open ear from a new president, it will be fascinating to see just how radical 2017 will be.