FinXTech Annual Summit: Exploring the Power of Collaboration


fintech-5-9-18.pngBanks are increasingly becoming technology companies—not in the eyes of investors, perhaps—but certainly in terms of meeting the expectations of their customers in a rapidly digitizing consumer marketplace. Banks have been heavy users of technology for decades, but the role of technology in virtually every corner of the bank, from operations to distribution, to product design, lending and compliance, is taking on a greater strategic importance.

It was only a few years ago that an emerging fintech sector was viewed by many bankers as a competitive threat, particularly marketplace lenders like Lending Club and SoFi, or new payments options offered by the likes of Apple Pay and Venmo, PayPal’s successful P2P product. While those competitive threats still exist, the focus of most banks today is working with fintech companies in collaborative relationships that benefit both sides. Banks are facing enormous pressure from changing consumer demographics and preferences to develop new products and services that go well beyond what they have traditionally created on their own. The new ideas include more than just new applications that enhance or expand an institution’s mobile banking capability, an area that continues to receive a lot attention. With developments in artificial intelligence (AI) and machine learning, banks are able to bring greater efficiencies and effectiveness to such disparate activities as regulatory compliance and accounts payable.

There are challenges to a partnership approach, however, beginning with the necessity to fully vet the potential fintech partner in a thorough due diligence process. Banks are conservative by nature, while many of the fintech companies developing the systems and applications that enable banks to stay abreast of the rapidly evolving digital economy are quite young and culturally different. Banks that want to work with fintech companies will have to do the necessary due diligence while also bridging the culture gap.

The benefits, and challenges, of working collaboratively with fintech companies will be the focus of Bank Director’s FinXTech Annual Summit, which will take place May 10-11 at The Phoenician resort in Scottsdale, Arizona. The agenda kicks off with back-to-back peer exchange discussions on the dynamics of fintech partnerships and changes in consumer behavior, then provides both general session presentations and case study sessions that examine such topics as innovation, AI, automation in commercial lending, vendor contract management, the digital robotic workforce and the future of the branch in an increasingly digitized world.

Also occurring at the Summit will be the announcement of Bank Director’s 2018 Best of FinXTech Awards, which will be given to banks and their fintech partners for projects where they worked together in a collaborative relationship. From a list 10 finalists, awards will be given a bank and its fintech partner in each of the following award categories: Startup Innovation, Innovative Solution of the Year and Best of FinXTech Partnership.

Considering Fintech Partnerships? Don’t Forget the Fundamentals


fintech-4-30-18.pngAs the benefits of partnerships between banks and financial technology (fintech) organizations have become more evident, bankers’ fears of being displaced by the wave of fintech startups have cooled.

Increasingly, bankers see that taking on a fintech partner can enable them to offer new products and services, develop new delivery models, and enhance the efficiency and effectiveness of back-office functions.

And yet, despite the growing awareness of the value of these partnerships, dispositional mismatches between banks and fintech companies have caused banks to struggle to make these partnerships work.

One of the most common sources of discord is in the area of risk management. Bank risk and compliance professionals are wired to mitigate risk rather than to manage it. The urge to shelter banks from risk through traditional risk and compliance practices, however, can dampen the innovation that is at the core of fintech’s appeal.

Banks aiming to get more out of these partnerships should review and hone their operations, aligning business goals and risk management goals across strategy, culture and information sharing.

Strategy Trumps Granular Problem-solving
Fintech companies and banks entering into partnership agreements often fail to effectively think through and communicate about their individual corporate strategies and how the partnership fits in.

Banks might approach a partnership with a problem they would like the fintech company to solve, without clearly defining how the partnership fits into their overall business strategy.

An important first step for banks is to think of a fintech engagement as a true partnership, rather than a vendor relationship.

The two organizations should sit down together to collectively identify the objectives and goals of each organization and how the partnership can advance those goals.

Going further, both organizations should establish boundaries around what they are willing to do to achieve their objectives, what resources will be made available to deal with challenges, and what will trigger the escalation of an issue to executives’ attention.

Ultimately, the purpose of the partnership must be clearly tied to the broader strategy of each organization, and at the outset, the partners should establish a process to ensure that purpose and strategy will remain aligned.

Meet at Cultural Crossroads
Fintech companies and banks often experience a culture clash at the outset of a partnership. The more traditional culture of a bank can seem starkly different from that of an innovative and fast-moving fintech company, particularly in the area of risk tolerance. While banks often view any loss adversely, fintech companies are much more comfortable with the idea of taking a small loss in the spirit of innovation and learning.

This question of culture fit rarely is considered in the traditional vendor management process. But finding a way to align the two, often disparate, cultures is critical in forging a successful partnership.

Both parties should evaluate prospective partners’ values at the outset. Once a partnership is formed, the parties should establish a set of principles that define practices and policies that are deemed acceptable on both sides. This set of principles should be viewed not as rules per se, but as broad guidelines.

Another important aspect of culture is how both organizations treat failure. Rather than taking a punitive approach to all failures, banks should be open to the idea that some failures can be positive if they advance innovation.

Information Sharing
Fintech companies sometimes are hesitant to share their data, either because they consider it proprietary or because they simply do not know what data banks want. On the other hand, banks, particularly in light of privacy regulations, might be hesitant to share information that does not directly affect the partner relationship.

Both parties should work to overcome barriers to information sharing, as the degree of transparency in a partnership is directly related to its success. With more data, partners can better assess performance and identify unforeseen compliance risks that emerge.

As in the case of strategy and culture considerations, expectations defining the process and extent of data sharing should be set up front. Banks should consider what information they can provide to fintech partners that might not be directly related to the product – but which might help grow the strategy or solution.

Competitive Advantage Through Thoughtful Partnerships
By establishing some basic principles around strategy, culture, and information sharing, bank executives can make better decisions as they enter into partnerships with fintech companies. Poor execution on fundamentals should not be allowed to hamper the successful execution and growth of these partnerships.

Why It’s Never Been Easier to Adopt a Fintech Solution


innovation-4-9-18.pngFor many banks and financial services firms (incumbents), emerging financial technology firms (fintechs) were once viewed in two camps: flash-in-the pan, one-hit wonders or serious threats institutions should avoid. Perhaps the media was partially to blame for this “us vs. them” mentality with its prolific use of words like “disruption” or its positioning of fintechs as the only companies who embraced change or were capable of innovation. Beneath the exuberant headlines espousing the promise of these new technologies and the industries they would revolutionize, there was more than a hint of negativity, a healthy dose of fear mongering, and a pretty clear message, “Dear banks, you are not invited to the party. In fact, we are coming to crash yours.”

Although those of us who worked in banking and wealth management bristled at the tone and approach of these young companies, none of us could disagree with much of what they were saying: things were broken and radical change was afoot. Yet, there was something about the disruptor’s manifesto that seemed a little naïve, a bit misguided and certainly incomplete.

There was the assumption that financial institutions were resistant to change or opposed to innovation; neither of which, I would argue, were entirely true. For a myriad of reasons companies wanted change. The unspoken matter was how could they realize it in a cost effective and compliant way without disrupting any core processing or custodial technologies. Would these technologies integrate cleanly?

Fast forward to 2018
Much has changed. Many of the disruptive fintechs with their go-it-alone, direct-to-consumer business models have pivoted to business-to-business service models and now service the very companies and industries they set out to upend. Similarly, banks who either ignored the boisterous fintechs or chose to build internally are rethinking their strategies and engaging with start-ups.

What has changed?
The quick answer is everything. The disruptors have not only proven their technologies, but the market has begun demanding their services. Furthermore, the speed of innovation, adoption and deployment has quickened at such a rate that what was once deemed new or disruptive is suddenly table stakes.

Having experienced how difficult it is to create brand identity and how expensive it is to acquire clients, many fintechs have turned their focus to servicing institutional clients. Fintechs have a deeper understanding of the complex business activities and regulatory and compliance processes with which financial services must adhere and are designing their technologies accordingly. The technology is often preconfigured, ready to integrate into existing back-end processes, and deployable at a large scale.

Us vs. Them Becomes We
Fintechs are easier to partner with and their solutions have become easier to adopt. No longer is innovation limited to the banks or organizations with large IT budgets and staffs. FinTechs have made innovation available to all financial firms, with prices and engagement models that meet most budgets.

The nimble nature of fintechs has allowed them to adapt to changes and fine-tune their technology at a much quicker rate, bringing the most scalable solutions to the market. With an emphasis on engagement and a seamless experience for both clients and institutions, fintechs are no longer serious threats but rather trusted partners bringing a necessary business function to institutions.

Lastly, and equally important, the value proposition for incumbents to adopt digital solutions is clearer and far more comprehensive than previously articulated or understood. Fintechs make it easier for institutions to launch new business services such as wealth management or lending solutions to diversify product offerings, deepen client engagement, enhance client acquisition and strengthen loyalty. This not only helps grow the overall business, but many incumbents have realized significant cost savings through the automated processing solutions these new technologies offer and the elimination of manual back-end processes. As a result, businesses are seeing improved efficiency ratios and in some cases, higher valuations.

To conclude, a new breed of fintechs has emerged, many with the same face, most with a new sophistication and a deeper understanding of integration but all with the mission to empower. Transformation through collaboration is an impressive phenomenon, one that every firm should take advantage of and fintechs provide that opportunity.

Defining, Adopting and Executing on Fintech


fintech-9-5-17.pngFintech has become a convenient (and amorphous) term applied to virtually any technology or technology-enabled process that is, or might be, applied within financial services. While the technologies are complex, the vast array of the current wave of fintech boils down to three simple dynamics: (1) leveraging technology to measure or predict customer need or behavior; (2) meeting customer need through the best customer experience possible; and (3) the ability to execute more nimbly to evolve products and services and how they are delivered.

Every reasonably well-versed person in fintech knows that the ability to predict customer need or behavior is achieved through a strong data infrastructure combined with a high-quality analytics function. But what defines the quality of the customer experience? At Fundation, we believe the quality of the customer experience within financial services is determined by the convenience, simplicity, transparency, intuitiveness and security of the process by which a product or service is delivered. The challenge for many financial services companies in developing the optimal customer experience lies in the rigidity of their legacy systems. They lack the flexibility to continually innovate products and services and how they are delivered.

The distinct advantage that fintech firms like Fundation have over traditional financial services companies is the flexibility gained from building their technology infrastructures from scratch on modern technology. With in-house application development and data operations capabilities, fintechs can rapidly engineer and, more importantly, reengineer the customer experience and their business processes. The capacity to reengineer user interface (UI), user experience (UX) and back-end processes is a major factor in the ability of financial services companies to maintain a competitive edge in the digital era where customers are accustomed to engaging with the likes of Google, Amazon, Facebook and Apple in their digital lives.

Banks Remain Well Positioned to Win With Fintech
Armed with these capabilities, we, like so many fintechs, could be thumping our chests about how we are going to transform banking. But at Fundation, we see the future differently. We believe that the biggest disruption to banking is not going to come from outside of the banking industry—it’s going to come from the inside. A handful of banks (and maybe more) will reengineer their technology and data infrastructure using modern systems and processes, developed internally and augmented through highly integrated partnerships with fintechs. As a result, these banks will generate superior financial returns and take market share as customers migrate to firms that provide the experiences they expect.

In addition to enjoying a lower cost of capital advantage versus fintechs, we believe banks are well positioned for three other reasons. First, banks will remain the dominant choice of customers for financial products given their brand strength and existing market share. Second, banks have far more data than the average fintech that can be used to develop predictive analytics to determine customer need or behavior. Third, and perhaps most important, banks have what we at Fundation call the “trust asset:” their customers trust that they will protect their information and privacy and that they will recommend products best suited to their needs.

Be the Manufacturer or the General Contractor
Banks are in a strong position to win the fintech revolution but what remains are the complexities of how to execute. There are a few basic strategies:

  1. Do nothing
  2. Manufacture your own capabilities
  3. Operate as the general contractor, aligning your institution with third parties that can do the manufacturing
  4. Some combination of manufacturing and general contracting

For banks that are predominantly in relationship-driven lines of business rather than transactional lines of business, doing nothing is viable for now. The pressures on your business are not as severe, and a wait-and-see approach may enable you to make more informed decisions when the time is right.

For others, doing nothing is fraught with peril. Assuming that you choose one of the remaining three options, the implementation process will be hard, but what may be even harder is the change in organizational psychology necessary to execute on your decision. Resistance to change is natural.

That is why fintech initiatives should be driven top-down. Executive leadership should command these initiatives and set the vision. More important, executive leaders should explain why the institution is pursuing a fintech initiative and why it has decided to build, partner or outsource. Explaining why can reduce the natural resistance to, and fear of, change.

Manufacturing your own capabilities is hard work but has advantages. It provides maximum control over the project and limits your vendor management risk. The downside is that the skill sets required to execute are wide-ranging. That said, building in-house doesn’t mean that everything needs to be proprietary technology. Most fintech platforms are a combination of proprietary technology along with third-party customized components. Should you elect to build off of third-party software, you must ensure that the platform is highly configurable and customizable. If you don’t have significant influence over customization, you will lose the opportunity to reengineer the processes necessary to rapidly innovate and evolve.

Being the general contractor isn’t easy, either, but banks are very adept at it. You could make the argument that most banks are just an amalgamation of business lines, each of which employs a different system (mostly third-party) and are already operating as general contractors. The business line leaders we have come to know have significant experience managing critical third-party vendors and therefore have the skill set and knowledge to manage even the most innovative financial technology partners. What’s more, they often know what they would want their operating platforms to do, as opposed to what they are built to do today.

Should your institution decide to outsource services to a fintech firm, it is paramount to align interests. Banks should embrace their fintech counterparty as a partner, not simply a vendor. Welcome the flexibility that they offer, and allow them to empower your institution to innovate and evolve.

Don’t Squander the “Trust Asset”
In a world where Amazon, Google, Facebook and Apple dominate the digital landscape, deliver ideal customer experiences, and may possess a “trust asset” of their own, the status quo is not an option, no matter how painful change can be. If your financial institution intends to compete over the long term, executing on a fintech road map is vital, moving towards infrastructures with a foundation of flexibility. Over the next decade, flexibility will allow financial services companies to compete more effectively by delivering the products, services and experiences that customers will demand. Flexibility is what will allow your institution to maintain its competitive position over the long term.

Why Bank-Fintech Partnerships Are Here to Stay


partnership-8-18-17.png“Silicon Valley is coming,” Jamie Dimon, chief executive officer at J.P. Morgan Chase & Co., famously warned his bank’s shareholders two years ago. Indeed, with the rapid proliferation of fintech companies that are creating cutting-edge products, banks are asking how they can compete with these nimble startups that are reaching unbanked populations, and making routine transactions speedier and more accessible, without the same regulatory burdens shouldered by banks. While we can’t offer a silver bullet, it appears that some banks have concluded that there is considerable wisdom in the adage “if you can’t beat them, join them.”

A bank-fintech partnership is an arrangement in which a fintech company provides marketing, administration, loan servicing or other services to a bank to enable the bank to offer tech-enabled banking products. For example, a fintech company may perform loan origination services, while the bank funds and closes the loans in its own name and later sells loans it does not want to hold in portfolio to purchasers, including the fintech company. Banks have also partnered with fintech companies to provide payments services or mobile deposits. While some partnerships offer products under the fintech company’s brand, in other cases the fintech company quietly operates in the background. Some banks enter into more limited relationships with fintech companies, for example, by purchasing loans or making equity investments.

Many banks have realized advantages of bank-fintech partnerships, including access to assets and customers. Since most community banks serve discreet markets, even a relatively simple loan purchase arrangement can unlock new customer relationships and diversify geographic concentrations of credit. Further, a fintech partnership can help a bank serve its legacy customers, for instance, by enabling the bank to offer small dollar loans to commercial customers that the bank might not otherwise be able to efficiently originate on its own.

Of course, fintech companies derive significant benefits from these partnerships as well. For Fintech companies, having a bank partner eliminates barriers of market entry. With the bank as the “true lender” or money transmitter, the fintech company spares the time and expense of obtaining state licenses. Bank partners can lend uniformly on a nationwide basis and are not subject to many of the different loan term limitations that state licensed lenders are. Of course, banks must comply with their own set of lending regulations.

Though potentially beneficial, banks must be mindful of the risks that partnerships present. Banks are expected to oversee their fintech partners in a manner commensurate with the risk, as they would any service provider, following detailed regulatory guidance on oversight of third-party relationships. In June 2017, the Office of the Comptroller of the Currency (OCC) issued a bulletin communicating enhanced expectations for oversight of third parties, including, specifically, fintech companies.

Banks must perform initial and ongoing due diligence on any fintech partner to ensure that it has the requisite expertise, resources and systems. The partnership agreement should hold the fintech company accountable for noncompliance, and enable the bank to terminate the relationship without penalty in the case of any legal violation. The parties should agree to strict information security and confidentiality standards. Banks should reserve the right to conduct audits and access records necessary to maintain oversight. Adequate oversight is essential because liability for violations or errors made by the fintech company may ultimately rest with the bank.

Banks seeking to partner with lending platforms must also structure the relationship to address true lender concerns and consider how they will sell loans or receivables on the secondary market, including to the fintech company. Unless an arrangement is properly structured, a court or a regulator may conclude that the bank was not the true lender and that the interest exceeds applicable usury limits. Similarly, as a result of a ruling by the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, if interest on a bank loan exceeds the rate permitted by applicable law for non-bank lenders, a non-bank purchaser may not be able to enforce the loan even if it was valid when made by the bank. Banks might address this risk by selling participation interests instead.

While competition from fintech companies may seem daunting, the proliferation of bank-Fintech partnerships suggests that banks fill a critical niche in the fintech industry. Moreover, even though some fintech companies have sought to become banks themselves and the OCC has proposed offering a special purpose bank charter to fintech companies, given the high regulatory hurdles of operating as a bank and the obstacles the OCC has encountered in advancing its proposal, it appears that bank-fintech partnerships are here to stay.

Coming Out of the Shadows: Why Big Banks Are Partnering With Fintech Firms


fintech-8-4-17.pngEver since the introduction of the ATM machine in the 1960s, which several inventors have claimed credit for, banking’s technology has often come from outside the industry. Community and some regional banks across the country almost exclusively rely on vendors for everything from check processing to their core banking systems, and they have done so for decades.

Some banks don’t even count their own money. Counting machines developed by vendors do that, as well.

But banks in general have preferred to keep vendors hidden in the background so customers didn’t know they were there, and big banks have sought to develop much of their own technology in-house. Last year, when I interviewed Fifth Third Bancorp CEO Greg Carmichael for the third quarter 2016 issue of Bank Director magazine, the bank was proud to have developed and spun-off payment processor Vantiv and was planning to hire 120 technology staffers so it would have roughly 1,000 people working in information technology at the end of that year. Bigger banks have even larger crews.

Some of the biggest banks continue to invest in innovation laboratories and pump out new technologies with little to no help from outside vendors, and do an excellent job with it. But there is evidence that even some of the largest banks are warming to the idea that great technology really is coming from startup fintech firms, and that partnerships will speed up the process of innovation and give banks access to sizeable talent outside the banking sector.

The market is changing way too fast for banks to do all the things in-house they’ve done in the past,’’ says Michael Diamond, general manager of payments for mobile banking and identification vendor Mitek, which sells its products to several of the biggest banks. “They know that.”

Aite Group researcher Christine Barry describes it this way. Historically, most large banks have promoted the technologies they have built themselves and kept the names of any technology partners undisclosed. “They did not view such partnerships as a strength and rarely allowed technology partners to reveal their names,’’ she and David Albertazzi wrote in a recent research report, “Large Banks and Technology Buying: An Evolving Mindset.” “That mindset has begun to change, given the increased attention many fintech companies are now enjoying in the marketplace.”

Nowadays, fintech partnerships are viewed as a leg up for a financial institution, and even the biggest banking players are proudly announcing their affiliations with a multitude of small firms.

USAA, long an innovator in its own right, partnered in 2015 with Nuance to offer virtual assistants to customers, and later, a savings app. TD Bank last year partnered with Moven to offer a money management app for consumers. This year, Capital One Financial Corp. joined other big banks in offering Bill.com to small- and medium-sized businesses, a platform for managing invoices and bill payment on a mobile device.

About 92 percent of banks plan to collaborate with fintech companies, according to a 2017 survey by information technology consulting firm Capgemini Global Financial Services.

In the past, technology might have helped improve back-office efficiency or reduced wait times in the branch. Nowadays, it’s at the forefront of strategic planning and the way banks plan to offer a competitive edge, Barry says.

It’s not just attitude that’s changed. The technology itself is developing rapidly. New ways of interacting with customers using artificial intelligence or virtual reality will be harder to banks to develop themselves, and easier to obtain through partnerships. Amazon’s Alexa, the voice service that powers the Echo, already is transforming consumers’ expectations for shopping, because they can now talk with a robot and order what they want online through voice commands. (For more on what banks are doing about AI, see Bank Director digital magazine’s Fintech issue.)

APIs, or application programming interfaces, will make it easier for banks to offer their customers a variety of technology solutions, by opening up their systems to technology vendors, as described in a recent issue of Bank Director digital magazine.

One of their biggest obstacles for banks is to monitor every vendor for compliance with regulations and security concerns. Smaller banks just prefer to do business with established vendors they trust. But already, they have begun to tap into the benefits of a wave of new fintech technologies, too, by asking core processors such as FIS and Fiserv to connect them with best of breed products, Diamond says. “They need the outsourcers to outsource themselves,’’ he says.

Q&A: What Do Fintech Companies Commonly Miss?


fintech.png

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

Gaining a Digital Competitive Advantage



The average small business owner uses technology every day to run the enterprise—and the same is expected of the financial institution, explains Chris Rentner of Akouba Credit. Banks that adopt technology will have a competitive edge in the market.

  • Why Banks Should Explore Fintech Partnerships
  • What Small Business Customers Expect From Their Bank

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.

Build vs. Buy: How to Crack the Digital Wealth Management Sector


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The wealth management industry has been a significant source of fees for many banks in recent years. As innovation in the sector has resulted in the development of a plethora of digital asset management solutions, including so-called robo-advisors and data aggregation applications, a number of banks and other financial institutions (FIs) have taken steps to participate in this emerging market via partnerships or acquisitions. Recent activity in the sector includes Ally Financial entering the space by buying TradeKing, Northwestern Mutual buying LearnVest and BBVA partnering with FutureAdvisor. Leading robo-advisor firms Betterment and iQuantifi have also taken part in the trend by inking partnership agreements with banks.

Some large FIs have taken a different approach to entering the market, choosing to build their own fintech applications instead of buying or partnering. Firms taking this tack include Schwab, Fidelity and Vanguard, all of which have created their own robo-advisor offerings.

An upsurge in M&A activity can be a sign of a maturing industry, and this appears to be the case in the fintech space; after several years of breakneck growth, the market for digital advisory services seems to be stabilizing. Lending support to the idea that the pace of expansion is declining, at least among business-to-consumer digital wealth management services, is this blog post from industry expert Michael Kitces, who reports that robo-advisor growth rates have dropped precipitously this year to approximately one-third of year earlier rates.

In an interview for this article, Kitces, publisher of the Nerd’s Eye View and co-founder of the XY Planning Network, advised that FIs looking to purchase or partner with a company in the fintech sector focus on aligning any such effort with their core strategy. He suggests they identify the core business model used by the partner or acquisition target and ask how the technology powering that model feeds into the FI’s business strategy: “Is it lead generation? Is it customer retention? Is it expanding wallet share? And will the technology realistically be adopted, by the right customers or prospects, to serve that goal?”

One obstacle banks looking to buy their way into the digital wealth management sector may face is that M&A activity in the industry has lessened the pool of potential acquisitions. Tomas Pueyo, vice president for growth at fintech firm SigFig.com, points out that while buying can allow FIs to accelerate their time to market in comparison with building technology of their own, so many digital wealth management companies have been acquired that those left are mainly newer entrants to the space. While some large FIs have built their own fintech systems, the vast majority don’t, he says, “because they are much less productive than startups at creating new technology and don’t have as strong a culture of user experience.”

Mike Kane, co-founder and master sensei (a Japanese martial arts term that means teacher or instructor) at digital wealth management firm Hedgeable, expressed similar sentiment in regards to the difficulty banks face when competing with startups from a technology standpoint. Along these lines, Kane outlined some of Hedgeable’s latest feature introductions, including “core-satellite investing, bitcoin investing, venture investing, a customer rewards platform, account aggregation, and increased artificial intelligence with many more things in the pipeline.”

The difficulty of competing with nimble startups and the paucity of attractive acquisition targets leaves partnering as the preferred option for banks interested in entering the market, according to both Pueyo and Kane. “The great thing about partnering is that it dramatically reduces cost and time to market,” says Pueyo. “It’s a way to pool R&D for banks with very little cost and risk.” Kane also sees branding benefits accruing to banks which work with innovative technology firms in the sector: “Young people trust tech firms over banks, so it is in the best interest of old firms to partner with young tech firms for product in all parts of fintech,” he said.

SigFig has partnered with a variety of companies throughout its existence, beginning with AOL, Yahoo, and CNN for their portfolio trackers, and more recently with FIs including UBS, the largest private wealth management company in the world. Hedgeable also has made use of the partnership model in building its business. Kane reported that over 50 firms, including both U.S. and international FIs, have signed up for access to the firm’s free API. Hedgeable offers its partners revenue sharing opportunities to go along with the benefit of saving money they would otherwise spend developing their own platform.

Amresh Jain of Strategic Mergers Group, who advises clients looking to do deals in the sector, sees digital wealth management solutions only gaining in importance as new technologies make it easier and more efficient to process and allocate investment portfolios: “The first phase of digital wealth management was focused on the ability of robo-advisors to automate the investment process. The next phase, in my opinion, will see human advisors increasingly integrating their efforts with digital wealth management solutions to provide an enhanced client experience.”