Saturday, May 07, 2016

FinTech and Community Banking: Built for Marriage?

Recent news of Prosper scaling back and OnDeck Capital's ongoing losses has taken a little shine off of the FinTech apple. Doesn't this happen with every meteoric rise?

Recently a former bank director and active bank stock investor asked me about the rise of FinTechs and how it impacts community banks. Here is my answer to him.

"I think technology firms are going to change banking forever. So if bankers that you talk to reminisce about the good old days when they could shake hands, make loans, and win relationships, run away.'

'But the death of the community bank is exaggerated. Banks have customer trust. FinTechs have yet to earn it. Banks have customers. FinTechs want them. Banks have regulatory experience and regulators are now figuring out how to regulate FinTechs (good luck!). Banks have capital. Many FinTechs have sold to banks or seek investments from them (Note: I am on the advisory board to Hip Pocket that was currently cited by Finovate as a great prospect for bank strategic seed funding). Banks are FDIC insured. FinTechs are not. Banks have deposits. SoFi has none.'

'Somewhere in between the two extremes of 'ignore FinTech', or 'FinTech will rule the world', will be the future for community banks. Collaboration between banks and FinTech firms has already begun, and I expect it to continue."


How do you anticipate the future of these two industries come together?


~ Jeff


Note: I am not a licensed financial advisor. So do not buy or sell stocks based on anything you read here. The government requires a test. Go to one of those folks.

8 comments:

  1. My quick response to your post Jeff is that the FinTech startup sector has been partnering with banks for well over a decade. The hype cycle from the last few years has focused on the banks vs FinTech battle. Some of this is due to the recent financial crisis. During my recent interview on the Money Summit blog I talked about this hype and about some great FinTech companies that help banks (Source Link: https://www.mx.com/moneysummit/david-gerbino ).

    Later this week, an article I wrote about about a fantastic consumer lending FinTech company will be published. This FinTech, CUneXus, has eliminated a lot of the friction around loans and they only work with banks and credit unions. Once the article is live I will share the link. FinTech is going to change the face of banking. Why? Technology always has.

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  2. There many cases were collaboration is the best for both parties. It will help drive the best possible solution for customers. With many of these “challengers”, it is also possible to collaborate and compete with the banks at the same time depending on their product or services they offer. Banks are also funding some of these Fintech firms.

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  3. I think the rapid customer acquisition by FinTechs in recent years fed the hype and growth. From the lending side, will FinTech loans hold up during a recession? They seem confident.

    From a banking process side, I see good things ahead.

    Thank you both for your comments. And Dave please share your link when it is up!

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  4. Hi Jeff, I enjoy reading your blog. This post reminded me of something I recently saw on 60 Minutes – link below. Banks will have no choice but to collaborate with FinTech firms and adapt to the millennial generation.. 70% young adults would rather go to the dentist than a bank!
    http://www.cbsnews.com/news/fintech-shaking-up-the-financial-industry/

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    Replies
    1. From my observation, millennials are not very good managing their finances. General statement... yes. True? I think so. Banks, as they are now staffed and with their current technology platforms, are not built to help them. So the generation turns to auto-help, such as budgeting apps, and Betterment. The big risk is once they turn to automation, will they come back?

      Thanks for the comment Allyce!

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  5. Jeff, two of my favorite FinTech startups, CUneXus and Avoka, are helping banks and credit unions remove the consumer lending application friction. They have both demoed their capabilities at Finovate. On May 10th, CUneXus introduced AutoXpress at Finovate Spring. It turns a bank's mobile banking app into an end-to-end auto purchasing experience. My Financial Brand article has more about this outstanding solution.

    http://thefinancialbrand.com/58854/lending-digital-technology-innovation-fintech/

    The cool thing about the CUneXus platform is that it uses each bank and credit unions partner's lending criteria and existing infrastructure. The risk is not using their platform.

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    Replies
    1. Dave, improving bank processes is one critical use of FinTech, in my opinion. Consumer loans, for example, are barely breakeven in terms of profitability based on my company's measurement of bank products. There is too much time, too much paper, and too many hands involved to make a smallish loan spin out enough yield above the cost of funds to make this work. In comes FinTech.

      Thank you for the comment and link!

      ~ Jeff

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  6. Interesting blog and I really like your work and must appreciate for your work for the Fintech.


    stararkfintech

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