Tech Entrepreneurs Are Here To Run Your Bank
Finovate Conference, San Jose - For decades, financial technology firms sold their products to big banks. Today, a new generation of venture-backed fintech entrepreneurs have the consumer in their sights and are threatening to disrupt the very financial services firms they once considered clients.
From equity crowd-funders like Venovate - giving the mass affluent access to alternative investments - to social platforms like Loyal3 - offering slices of tasty IPOs to the financially uninitiated - technological advances are creating financial offerings which were unimaginable even five years ago and which many traditional FIs have been slow to anticipate and even slower to adopt.
One Finovate exhibitor, for example, Red Giant, offers a debit card that pairs with its owner's smartphone, giving them the ability to 'lock' and 'unlock' it, as well as delivering immediate receipts, balance updates and a real-time view of their spending against goals. Red Giant is not currently trying to sell itself or its technology to banks and if its multifaceted cards become popular, then traditional bank debit cards are going to feel pretty antiquated pretty quickly. "You mean your debit card only lets you pay for things at stores and take money out of ATMs? How quaint!"
Unencumbered by the constraints of bricks and mortar financial firms, tech entrepreneurs can think differently about the whole financial experience. One such platform, SaveUp is designed to reward saving and is on a mission to help consumers rebuild their finances after five years of recession. Describing themselves as ‘the gummy vitamin of personal finance', SaveUp blends traditional balance updates with gamification, encouraging consumers to pay down debt with the opportunity to win prizes and merchant-funded rewards.
The Finovate conference is full of such firms; all looking to offer a new way of approaching financial services - at times partnering with banks, credit unions, asset managers and brokers, and at times bypassing them altogether. Importantly, this is no wild west. Many of these firms, such as Loyal3 and Venovate have registered as broker dealers or worked hand-in-hand with regulatory bodies like FINRA or the SEC to ensure that compliance and security were baked in to their offerings from the outset.
Even where these tech firms are partnering with banks, it seems to be the small credit unions and regional banks that are recognizing the opportunity and are nimble enough to jump on it. SaveUp has had most traction with credit unions. Red Giant offers its cards through a small regional banking partner in Minnesota. There doesn’t appear to be a SIFI (systemically important financial institution) in sight. The potential here is not just for the fintech entrepreneurs but also for the small FIs who, having never been able to fight a ground war against the biggest banks, now see a way to eke out a technological advantage. If Red Giant’s cards become ubiquitous then so, by extension, will be that Minnesotan regional bank.
Last week I spoke to Jill Castilla, CEO of Citizen’s Bank of Edmond, Oklahoma. Citizen’s Bank is a fourth generation, family owned, regional bank which has been serving customer and small businesses in the Oklahoma City region since before Oklahoma was an official state. Recognizing that she couldn’t beat her large competitors in the ground game, Castilla made the radical decision to close down all but her central branch location. Reinvesting the money in proprietary technology, Citizens replaced its expensive branches with fully interactive ATMs that enable customers to speak directly to tellers back in HQ. Today, Citizens is one of the only banks to offer this service and the bank is now licensing its proprietary ATM platform to other financial institutions.
Of course, there's still plenty of money to be made creating solutions for the banks, and plenty of developers ready to create such applications. French company, Yseop is seeing strong demand for its Artificial Intelligence and natural language software within major wealth management firms. Social media data platform, Market Prophit, is attracting significant interest from hedge funds and prop trading shops. But to hear these tech firms talk about the market, financial institutions are merely a stepping stone to something greater, rather than the end-game they once were.
This is the future of finance which the tech entrepreneurs and venture capital firms are currently building in the tech hubs of Palo Alto, Dublin, Tel Aviv and Hong Kong. If banks don't start paying attention soon, they may find that the financial services industry has moved on without them.comments powered by Disqus