What do fintechs say is next for the industry?
June 1, 2019
Back row, from left: Ashley Jones, the Venture Center; Erez Saf, CRiskCo; Brian Bauer, the Venture Center; Karl Falk, Botdoc; Tim Evans, Adlumin; Wayne Miller and Austin Rodgers, the Venture Center; Sajil Koroth, KapitalWise; Har Rai Khalsa, MK Decision; Jessica Head, the Venture Center. Front row, from left: Mimi San Pedro and Daniel Schutte, the Venture Center; Tanya Hiple, Invest Sou Sou; Colin Savells, 3E Software; Arcady Lapiro, Agora; Fonta Gilliam, Invest Sou Sou.
Digital technology is causing seismic shifts in almost every industry, and banking is no exception. We asked the recent graduates of ICBA’s ThinkTECH Accelerator for their thoughts on fintech trends—and how community banks can get ahead.
By Eric Best
The eight early stage startups that participated in ICBA’s ThinkTECH Accelerator program are innovators across the fintech industry and will play no small part in the evolution of the community banking experience.
So, who better to know what the future holds when it comes to financial technology and its place in the banking industry? Not surprisingly, these tech pioneers are thinking big about how community banks can keep up, how customer behavior is changing and how the very nature of banking is adapting to this digital transformation.
Banking beyond the branch
What’s clear is that community banking has changed, from what it looks like to where it happens. Many customers are making financial transactions and decisions far from the branch, a trend that, with the help of fintechs, these entrepreneurs say will only continue.
“We believe that banking is no longer a place that you go but is something that you do.”
—Har Rai Khalsa, MK Decision
“We believe that banking is no longer a place that you go but is something that you do,” says Har Rai Khalsa, cofounder and CEO of MK Decision, a digital lending platform developer that counts ICBA Bancard and other fintechs as partners. Khalsa says customers are interacting with banks on myriad platforms and devices, from laptops to phones and tablets, and describes their experience as a “digital journey.” “The interfaces that we’ve built are built for the future,” he adds.
Erez Saf, CEO and founder of CRiskCo, a developer of artificial intelligence-driven loan origination software, says commercial banking services have already started to look different and will continue to change. He foresees more and more customers reaching out to their community banker while they’re driving—or, eventually, while their car is driving itself—or in other ways outside the branch. “This is the perfect time to have a meeting with your banker,” he adds. “You will go to the branch, just not physically.”
Faster banking—but stronger relationships
Community banks have always differentiated themselves with their focus on relationship banking. On the face of it, the human interactions that community bankers have with their customers may feel at odds with the digital tools that fintechs espouse, but many fintechs say they aim to help, not hinder, community bankers do what they do best. In the future, these fintech players say bankers should find high-tech solutions to help foster innovation at their banks, but not at the cost of high-touch customer engagement.
Former banker Joe Ehrhardt is chairman and CEO of 3E Software, whose flagship offering is Teslar, its software-as-a-service (SaaS) solution. He says platforms like Teslar, a unified program that stops bank staff from spending hours working in countless spreadsheets, will create more time for community bankers to spend with customers. Some processes, especially back-end processes that place a heavy burden on staff and that customers don’t see, will have to be automated so bankers can concentrate on the front end.
“I see community banks getting stronger and stronger in the relationship area but speeding up their processes is critical for them to compete,” he says. “They can’t take 10 days to make a decision.”
But to Ehrhardt, this doesn’t mean community banks will have to look exclusively to automation solutions. “Make it faster, but still have that human who understands that it’s just not about the numbers,” he says. “It’s about the person, the community and about what [the loan] is going to do.”
Khalsa believes fintechs like MK Decision can empower community bankers to choose their bank’s own approach to automation, whether it favors volume, interaction or balancing the two. “It’s just not about building a high-tech approach, but also maintaining the high-touch approach that community banks have thrived through,” he says. “We’ve focused each implementation to that community bank’s goal for how they want to process loan applications.”
Tracy Fox, chief revenue officer of Botdoc, a secure digital transportation company, says he senses a nervousness from community bankers around going digital and embracing automation. Like Ehrhardt and Khalsa, he says they should be wary of losing their bank’s customer engagement in search of better technology and internal innovation.
“Technology for the sake of technology is a bad thing,” he says. “Technology that replaces the human experience—but is done in a way that is different than how the human experience would normally be done—is bad.”
A focus on customer experience
Beyond high-tech, high-touch banking, the accelerator finalists say a great customer experience will be even more crucial in the future, especially as tech giants and mega retailers with much larger budgets and customer service departments branch out into financial services.
“No one is thinking about the consumer as much as they should,” Fox says. “My fear is a lot of [community bankers] will make decisions for technology and ultimately realize they may have made it easier for internal staff, but what so many products don’t do is take the customer experience into account.”
Sajil Koroth, founder of KapitalWise, which aims to help bankers scale relationship banking through management tools, says some of the country’s largest businesses, from Amazon and Apple to Google and Facebook, have already started offering some financial services, but their presence in the industry will continue to grow. “The real challengers the banks are going to face for the next five years are tech giants that don’t need money from the banks,” he adds.
Arcady Lapiro, a veteran of Europe’s fintech industry, is the founder of Agora, which has developed user-experience innovations for banks. Lapiro has already seen retailers in Europe start to offer some financial and bank account services. “I think that more and more retail segments are going to provide some retail banking services,” he says.
Even if they don’t directly compete with community banks, large, tech-focused companies are setting standards for consumer-facing websites and services, which in turn increase customer expectations of how a business should operate—banks included. Khalsa argues that how a community bank interacts with its customers on all their smart devices should be on par with big banks and digital disruptors like Uber or Airbnb. “The experience of interacting with your community bank from those many, many devices has to be seamless,” he adds. “We’ve focused on customer experience as the core of our business.”
Exploring ‘social banking’
Invest Sou Sou is one of the first fintech startups to modernize social banking and help banks take advantage of existing social networks. The startup based its solution and its name on informal savings and loan models found in countries in West Africa and the Caribbean, where small groups of people agree to pool deposits and take turns borrowing from it. Invest Sou Sou takes advantage of social networking and today’s hyper-connected communities by having customers invite others to create saving and credit-building accounts, or what founder and CEO Fonta Gilliam describes as the modern savings account. “There’s a growing trend around how we can leverage the power around communities and finance,” she says.
“There’s a growing trend around how we can leverage the power around communities and finance.”
—Fonta Gilliam, Invest Sou Sou
Gilliam sees social banking as a tool or “multiplier effect” that financial institutions and fintechs will use to leverage the power of communities to do tasks that are often too difficult or costly. In the case of Invest Sou Sou, its social bank accounts are designed to help community banks cheaply acquire credit-ready borrowers and low-cost deposits. Similar social financial transactions have already grown mainstream, Gilliam adds.
“I definitely see [social banking] as something that’s very common in the future, and I’m hoping we can get more community banks to adopt this. They’re really the best interlocutors to adopt this,” she says. “We really see this as a kind of disruptor … providing them with a competitive advantage with megabanks and the other fintechs that are out there that are slowly starting to adopt this.”
Meet the icba thinktech accelerator finalists
Founders: Robert Johnston, Timothy Evans
Adlumin provides security information and event management (SIEM) built with machine learning and automated threat intelligence. With one foot in security and the other in reg tech, Adlumin finds threats, compliance violations and network operations failures. It can also automate for the Federal Financial Institutions Examination Council’s Cybersecurity Assessment Tool.
Founder: Arcady Lapiro
New York City
Agora, a self-described “fintech enabler” founded by CEO and European fintech player Arcady Lapiro, offers community banks customer-facing tools and features that enhance their existing core systems. These include shared account and children’s account management, real-time transactions, card controls and money pooling.
Founder: Karl Falk
Botdoc specializes in secure digital transportation, which allows businesses and consumers to send, as opposed to share, data. The B2B and B2C end-to-end encryption service, now used in more than 20 different industries, is designed to reduce human touchpoints and cut down on what Botdoc’s Karl Falk and Tracy Fox describe as today’s “portal exhaustion.”
Founder: Erez Saf
Tel Aviv, Israel
CRiskCo offers credit-rating tools to small and medium businesses and a loan origination solution to lenders. For community banks, the company aims to simplify, speed up and enhance the underwriting process by giving lending staff real-time credit insights, revenue stream predictions and customer-risk analysis.
Founder: Sajil Koroth
New York City
Sajil Koroth is a seasoned member of New York’s fintech scene, having co-founded two startups. He founded KapitalWise to address banks’ need to better understand their customers. On the B2B side, the platform aims to reduce customer acquisition costs and enable relationship bankers to better engage with clients.
Founders: Guru Dharam Khalsa, Har Rai Khalsa
Cofounder Har Rai Khalsa describes MK Decision’s lending platform as a future-proof, “end-to-end, streamlined system.” It features a credit-decisioning engine, fraud detection, core integration and loan origination software. Community banks that use the products can customize the automation level of their lending decisions.
Invest Sou Sou
Founder: Fonta Gilliam
Invest Sou Sou, a B2B and B2C social banking and credit application, launched in 2015 and was piloted for a year with banks in three states and customers in Tanzania. CEO Fonta Gilliam, a former State Department diplomat, based the service on West African and Caribbean informal savings and loan models, or sou-sous, which involve small groups of people who pool funds and take turns borrowing.
Teslar by 3E Software
Founder: Joe Ehrhardt
After years in banking and then in custom software, Joe Ehrhardt created software-as-a-service (SaaS) product Teslar. It’s a configurable lending dashboard that consolidates dozens of files and spreadsheets to save bank employees time and energy.
The finalists of ICBA’s ThinkTECH Accelerator shared a few additional theories on the future of financial services.
CRA reform needed. Fonta Gilliam, founder and CEO of Invest Sou Sou, says innovation and technology can help banks meet their Community Reinvestment Act (CRA) requirements and ensure they have their intended impact on communities. She foresees banks working with social impact-oriented startups and fintechs like hers to innovate the CRA space.
Credit cards, no more. Joe Ehrhardt, founder of E3’s Teslar, says the internet is having a profound effect on payments. Eventually, he predicts the old-fashioned credit card will go away. A new, mobile-friendly alternative will take its place. “Everybody sees the payment revolution [coming]; it’s just no one knows what that outcome is going to look like yet,” he adds.
A ‘regulatory nightmare.’ Robert Johnston, cofounder of software information and event management provider Adlumin, says if laws around data storage, know-your-customer (KYC) and other regulations in New York are any indication, it’s only a matter of time before other states follow its example. “I see a continuing regulatory nightmare,” he adds.
Eric Best is deputy editor of Independent Banker.