What the Heck is Web3?

With increased interest around Web3, making sense of the latest and newest technology trend — and its potential impact on financial services —  could add value to strategic discussions as leadership teams and boards consider their long-term strategies.

For early and seed stage venture capital, the top 15 firms invested $1.3 billion in Web3 and decentralized finance in the third quarter 2021, according to Pitchbook. The research company said investment in the space — which includes $900 million into the cryptocurrency exchange FTX and $120 million in Offchain Labs, a blockchain-based, smart contracts platform — beat out the separate fintech category, which landed in the No. 2 spot with $860 million invested.

Not everyone is convinced. In a December 2021 tweet, Tesla CEO Elon Musk called Web3 “more marketing buzzword than reality right now.” He was responding to a video of a 1995 interview of Microsoft Corp. founder Bill Gates with David Letterman, in which the TV host asked, “What about this internet thing?”

That question seems quaint today. Amazon.com had just opened for business as an online bookstore; Mark Zuckerberg would start Facebook roughly a decade later.

Facebook represents the current state of the internet, characterized by centralized platforms that own or leverage user content. But the web continues to evolve; venture capital firms and tech titans are using the term “Web3” to discuss this next phase. These changes encompass concepts that bank leadership teams and boards should be watching and regularly discussing.

“Web3 is really just a rebranding of a lot of the things we’ve already been talking about for a while,” says Alex Johnson, director, fintech research at Cornerstone Advisors. “It’s the collision of the internet and crypto in a way that allows for users of the internet to have verifiable ownership over the companies and products that they interact with.”

The expansion of digital assets underpinned by blockchain — including cryptocurrency and non-fungible tokens (NFTs), which represent ownership in art, music or even real estate — are reshaping the way that internet users think about ownership.

“There will now be the capability to give verifiable ownership — over content, over relationships, over access to special features, over [intellectual property] — to customers or users. And the potential impact of that is that companies that do that will have a significant marketing advantage and retention advantage,” says Johnson. Companies could use tokens to build loyalty and community, granting partial ownership to customers of products or ideas, similar to a referral bonus or share of stock.

Leveraging blockchain technology, investor Ryan Zacharia envisions consumers and businesses building digital identities. “People are going to effectively own and control their own identities and information, and hold that information in a digital wallet,” providing access when applying for a loan, for example. Zacharia is general partner at JAM Special Opportunity Ventures, which invests in up-and-coming bank technologies on behalf of partner institutions.

At the same time, a few banks are using blockchain to power real-time transactions. Last month, I watched the first real-time interbank transfer of stablecoins — cryptocurrency pegged to a stable currency or commodity — between two banks, $53 billion Western Alliance Bancorp., based in Phoenix, and $2.5 billion Coastal Financial Corp. in Everett, Washington. The transaction was facilitated by Tassat Group, which provides blockchain-based payment solutions for banks.

“The ability to have programmable money is a game changer for the whole economy,” says Chris Nichols, director of capital markets for SouthState Bank. “It’s the first time where you have value, the message and the ability to program all in one unit of code. … [T]his opens up a whole new set of products for banks.” Signature Bank, JPMorgan Chase & Co., Customers Bancorp and New York Community Bancorp are among the banks exploring blockchain-based products and services focused on payments and asset securitization.

Fintechs competing with banks are also taking advantage of the disintermediation trends promised by a Web3 economy. In March 2021, Block (formerly Square) acquired TIDAL. The artist-centered music streaming platform allows the Jack Dorsey-led digital payments provider to tap into another niche. In a press release, current TIDAL head and Square executive Jesse Dorogusker said the two platforms would “explore new artist tools, listener experiences, and access to financial systems that help artists be successful.”

Musicians and artists have been early movers on NFTs. Just last month, Ozzy Osbourne launched a “CryptoBatz” collection of NFTs, commemorating the notorious 1982 gig where the rocker bit the head off a bat. Earlier in 2021, the band Kings of Leon released the first NFT album.

“There is an opportunity for content creators, music creators, owners and writers and musicians to eliminate intermediation, connect directly to their fans [and] sell their music as NFTs,” says Zacharia. “That can generate revenue for the musician, and the NFT holders can receive programmatic royalties based on [a song] being played …  or what have you.”

Web3 requires an open mind and a firm foot in reality. Research into these concepts quickly unearth ideas that seem more like science fiction than traditional economics and finance. Facebook, for example, recently changed its corporate name to Meta Platforms as Zuckerberg expects people to interact more in the metaverse. Will part of the economy take place in a digital world, where we interact via avatars in a virtual space?

”It’s important to have conversations that contemplate what the world could look like in five or 10 years,” says Zacharia. The metaverse is an unlikely next step for a typical bank, but he could see an early-mover advantage for an enterprising financial institution that figures out how to bank the space. And despite the sci-fi luster, the evolution of the web promises to soldier on, bringing opportunities and risks for banks to consider, including fraud and cybersecurity. “There’s a tremendous amount of talent and effort and capital that’s going into this,” he says. “Frankly, I don’t think it’s a fad.”

Franklin Synergy Bank Partners with Built Technologies to Streamline Construction Lending


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For banks that finance construction projects, managing their loan portfolio—and particularly the draw disbursement process—can be an especially burdensome undertaking.

Most construction projects financed by a bank contain a draw schedule, which is a timeline of intervals for which funds will be disbursed to borrowers and contractors for use. The goal for banks is to make progressive payments as work is completed. Disbursing funds before work is completed or materials have been delivered puts the bank’s capital at risk. Late disbursement often entails delayed projects and poor client satisfaction.

The problem is, many banks have an arduous, time consuming—and ultimately costly—process for fulfilling draw requests. Which is exactly the challenge that Franklin Synergy Bank (FSB) had been facing for quite some time. Headquartered in Franklin, Tennessee, FSB operates with 12 branches, servicing over $400 million in construction and development (C&D) loans. FSB’s loan administration and draw disbursement processes were fraught with administrative headaches: large staffing overhead, heavy phone call volume, duplicate data entry into multiple systems, use of multiple spreadsheets, unmanageable email communications and antiquated fax and paper usage.

In short, FSB’s loan administration approach was not only costing the bank time and money, but it wasn’t allowing it to deliver a top-notch customer experience for their clients. Seeing technology as the most plausible solution to these issues, FSB decided to partner with Nashville-based enterprise software company Built Technologies. A web-based application with mobile functionality, Built’s application is designed to simplify draw management and disbursement for construction lenders like FSB. Built also allows clients and borrowers to manage the loan from their end, delivering a more seamless customer experience. In addition, borrowers and contractors gain more visibility into the draw management process, increasing confidence in their lending institution.

Prior to partnering with Built and implementing the firm’s platform, FSB had to handle most of the draw process manually. A single residential construction loan draw might involve an average of eight back-and-forth emails prior to approval, in addition to significant manual data entry. As a result, FSB’s loan portfolio had grown more expensive to manage, harder to report against and more prone to human error.

After the Built implementation, FSB no longer needs to receive emails to manage construction draws. Upon closing, the bank loads a new loan into the Built platform and grants the borrow, builder and inspector access based on specific user-based permission levels. The borrower or builder can then simply log into the platform and request a draw, triggering an automated series of events within a pre-defined workflow that facilitated only a single approval touchpoint at the end of the process on FSB’s end. Built then releases funds in an automated and fully documented fashion that saves time and energy across all user groups—including builders, borrowers, loan officers and inspectors. The result is providing construction borrowers the same level of access, visibility and convenience that retail customers experience when they bank online.

Adopting the Built platform has allowed FSB to streamline its construction loan administration team from four employees to two full-time and one part-time staff members. And the team went from managing roughly 750 loans at any given time to an increased capacity of over 1,000 loans. FSB was also able to reduce its draw processing time from 24 hours to a mere 30 seconds, resulting in both an increase in interest income and client satisfaction. Human error has been substantially decreased, and Built’s reporting capabilities have provided FSB greater insight into its construction lending portfolio. FSB can now easily identify, and proactively address, overfunded draw requests and stalled construction projects. In fact, this might be the most innovative aspect of the Built and FSB partnership, because it enables the bank to manage its construction loan risk better than its competitors.

The partnership between FSB and Built is a fitting example of a regional partnership setting the pace for what’s likely to be a national trend. Manual and paper processes are a productivity drain on businesses in any industry in terms of time, money and customer satisfaction. And with the enormous amounts of capital invested in building projects, nowhere is this more evident than the construction lending sector. Once other lenders realize the return on investment that merging technology with their loan management and draw disbursement processes can result in, similar partnerships are sure to follow.

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