The early stage fintechs from this year’s ICBA ThinkTECH Accelerator have a message for community bankers: Together, there’s no innovation or technology that isn’t possible with the right strategy in place. We asked the accelerator alumni to share their thoughts on what you need to know about fintech—and how to best work with companies like theirs.
By Eric Best
Earlier this year, nine startups joined ICBA and community bankers from across the country for a 12-week boot camp as part of ICBA ThinkTECH Accelerator 2.0. Now in its second year, the program brings together promising fintechs and community bankers for in-depth conversations about the solutions the industry needs to move forward.
These fintechs’ specialties run the gamut of community banking, from growing deposits to fraud protection and financial wellness. Their perspectives on the industry also shed light on what’s ahead for community banks and how they can best prepare for it. They see an industry on the cusp of adopting data-driven digital tools to outperform the competition and further strengthen the customer relationships at the core of community banks.
Big data means big value
To fintechs, data is like digital gold. And community banks generate a lot of it. They’re sitting on years and years of institutional data, but many don’t know what to do with it. Some even see data management as a chore, as it takes work and money to keep it safeguarded. In the coming years, fintechs suggest that outlook will change. As Yogesh Pandit, CEO of Hexanika in New York City, says, “Data is the new oil.
“As we spoke to more community banks, we realized that data has not been considered a key asset. In fact, community banks consider it a liability,” says Pandit, whose company offers software that automates end-to-end data management and compliance. “It’s important that banks understand the power of data and how it can help them further strengthen relationships with their customers, which is their true strength.”
“It’s important that banks understand the power of data and how it can help them further strengthen relationships with their customer, which is their true strength.”
—Yogesh Pandit, Hexanika
The reason data is so valuable to both fintechs and community banks is that they can use it to better understand who their existing or potential customers are and, ultimately, drive revenue. It can tell them what kind of purchases customers make or may be about to make, or the risks of offering them a loan, which can help acquisition, deposits and decision-making. Data connects the dots. “Banks can know more about their own customer by linking data among different products,” Pandit says.
The problem for many community banks is that their data is often siloed and in unnavigable formats. Usually, it’s generated as the bank’s core system processes loans, deposits and other services, including debit card systems, digital banking applications, bill pay and much more. Some community banks, depending on size, could have hundreds of data sources.
So, how do banks access and then connect all this information? And, then, how can they be sure it’s not full of duplicate or superfluous data? Fintechs say that’s where they can help, with easy-to-navigate dashboards, better-connected products and more.
“The first thing you hear from [community bankers], is that, ‘We know we have a data problem … yet, I can’t seem to get access to it, and once I do, I don’t know what to do with it,’” says Keith Henkel, founder and CEO of FI Works in Little Rock, Ark., a customer relationship management (CRM) provider. “The thing that I think more and more community bankers are realizing is that [the data problem] is a roadblock to doing a lot of things.”
“The thing that I think more and more community bankers are realizing is that [the data problem] is a roadblock to doing a lot of things.”
—Keith Henkel, FI Works
Once they’ve begun to take advantage of their data, community bankers may wonder how to make best use of it. Artificial intelligence (AI), or machine learning, is one answer, and the technology is at the core of many ThinkTECH Accelerator 2.0 finalists’ solutions. Their software is increasingly relying on the collective data of community banks and other financial institutions to improve efficiency and more. AI is no longer science fiction for banks of any size.
Take Fraud.net for example. The global fraud detection company in New York City mines bank data and continuously feeds it into its security tools to catch ever-evolving risk threats that a static platform may not be able to detect.
“[AI and machine learning are] behind chatbots, credit decisioning, lending and, obviously, fraud detection, to name a few,” says Kevin Shine, vice president of sales and partnerships at Fraud.net. “Fraud detection is a data game. The more data we can consume and decision in real time, the better the outcomes we can deliver to our clients and their customers.”
In a similar boat is Finscend, which offers credit and debit card dispute software that’s built on a predictive scoring engine. Card disputes can be a huge cost and time suck for any bank, says the fintech in Tel Aviv, Israel, so its Banking Dispute Platform relies on machine learning to take in transaction data and real-time information to assign an algorithm-based confidence score that the bank can then use to auto decision the dispute. Dispute resolution is a role typically only a couple employees are tasked with at a community bank, and Finscend says relying on the engine can make the process more cost-effective, accurate and transparent.
“Our system takes away all that subjectivity,” says Moshe Teren, Finscend’s chief technology officer and cofounder. “Our software is built from scratch; it’s a tool that no one has presented in the market today.”
On the fintech side, platforms built on AI need data to be successful, because the more information it has to learn from, the better the technology will perform.“We can only build a platform on the data we’ve been given,” says AK Patel, founder and CEO of Lendsmart. “If you share that with us, we can build a better profile from this existing borrower.”
In the case of Lendsmart, a loan automation provider in New York City specializing in mortgages, its solution claims to reduce the mortgage application process to 10 minutes. On the bank side, AI allows Lendsmart software to learn what documents
are what, pull the right information, and detect any unique transactions or large deposits that could signal fraud.
“We’re not replacing the loan officer or the underwriter; we’re just making your life easier,” Patel says. “You can spend that additional time to focus on the customer.”
“We’re not replacing the loan officer or the underwriter; we’re just making your life easier.”
—AK Patel, Lendsmart
Quickfire fintech trends
This year’s ICBA ThinkTECH Accelerator cohort reveal three other trends on their radars.
Faster payments and paychecks
Many workers, especially gig workers, are getting paychecks as quickly as the same day. Booshan Rengachari, founder of Finzly in Charlotte, N.C., says more and more workers will want their money instantly, and this speed will be fueled by real-time payments (RTP). Thanks to a push from community bankers and ICBA, the Federal Reserve is working on FedNow, an RTP network that will help make this possible. “Expectations have shifted,” he adds. “Customers want to transact faster payments. If you’re not going to enable them, you’re going to lose their deposits.”
Boosting the back office
While consumer-facing solutions draw attention, says Kevin Shine, vice president of sales and partnerships at Fraud.net in New York City, it’s solutions that quicken the pace of compliance, credit decision-making and other back office functions that will see more interest. “I think you will continue to see a wave of innovation to help community banks move away from manual process to automation,” he adds.
Blending modern tools with old-school service
Donald Hawkins of Griffin Technologies in Overland Park, Kan., understands community bank relationships. Back in his hometown of Albany, Ga., his family’s relationship with its community bank went back to his great-grandparents. But the customer journey to a bank today looks different. Customer acquisition and marketing tools supply context on consumers. Before, if a a customer was considering buying a car or home, their bank would have learned that through face-to-face conversations, which is less likely today. “We like to take our customers on a path to go back to the past to see how things used to be,” he says. “Griffin is the modern-day format for banks to be able to do that.”
Big bank tech on a small bank scale
On top of machine learning, there are other areas of fintech that may have felt out of reach to community bankers in the past. But fintechs say the industry has evolved to offer services akin to big banks that can be tailored to a community bank’s scale, expertise and, perhaps most importantly, budget. And, because community banks have smaller-scale, and thus more nimble, systems, these fintechs say their solutions are an opportunity for banks to get ahead of competitors with huge IT departments.
For example, how many community banks use geotargeting, influencer marketing or demographic research? Fintel Connect, a performance marketing company in Vancouver, Canada, focused on banking, makes it possible for community banks to grow their online customer acquisition in a targeted, cost-effective way through its tracking and reporting technology and growing network of financially focused publishers and influencers that promote the bank’s products.
“We feel that community banks have missed out,” CEO Nicky Senyard says. “In this performance marketing field, community banks really don’t know that it exists. There’s an appetite from publishers to work with community banks and they haven’t been able to access them until now. If a Wells Fargo or a J.P. Morgan can do it, there’s no reason why a community bank can’t do it on the level the community bank is at.”
In a similar high-tech marketing vein is Griffin Technologies in Overland Park, Kan., whose engagement solution plugs into a community bank’s mobile app to give bankers location data and the ability to set up geofences, or targeted locations that provide bankers insights and analytics into their customers’ intentions and interests. Its audience growth solution can target hundreds of different customer attributes, plus it can use IP addresses to find leads.
One major hurdle for many community banks is legacy technology that cannot yet be integrated with new technology and other innovations, such as new payments systems. Often, fintechs connect to bank systems via APIs, or application programming interfaces, which are the basis of today’s “open banking” trend.
“Almost every community bank I spoke with has challenges with their core,” says Booshan Rengachari, founder of Finzly in Charlotte, N.C. “Replacing the core is not an option. We remove the limitations of the core.” He adds that switching from one core to another can take several years and may not offer significant improvements, so the cores are here to stay.
Finzly’s “parallel core” platform is core agnostic, meaning it doesn’t matter what provider a community bank customer uses. The company’s range of services, as well as the third-party solutions in its own app ecosystem, can be layered on top of legacy technology, Rengachari says, providing a path for community banks to adopt a range of new tech, just as someone would open an app store on their smartphone and click download.
Rengachari says he’s speaking with community bankers who are shifting their mindsets around how to innovate and what adopting new technology looks like. And pressures are different today. Customer expectations are shifting around speed and service. The landscape has changed with the entrance of fintechs and neobanks. But community banks have a big opportunity with fintechs, which he describes as “innovation enablers.”
“You don’t have to wait 18 months, two years of integration. Those days are gone,” Rengachari says. “We have to innovate faster. The good thing is that we can still act and be successful. The time is right to innovate now.”
3 ways to make the most of fintech
The finalists of ICBA’s ThinkTECH Accelerator reveal how community banks can best approach working with fintechs.
- Be strategic about your choices
Community bankers should anchor their fintech strategy with wider bank objectives. “Few community banks actually have a predetermined, written strategy with an associated budget for how they’re going to achieve their strategic goals and objectives,” says Wallit founder and CEO Michael Vien in Westbrook, Maine.
After developing an innovation strategy and budget, don’t get “enamored with the bright and shiny,” says Keith Henkel of FI Works in Little Rock, Ark., meaning that whatever fintech a banker chooses should be tied to that plan. “There’s some really cool tech out there, slicker than anything you’ve ever seen before,” he adds, “but can you match that to one of your top initiatives?”
- Form your A-team
The staff a community bank uses to assess and manage its fintech relationships should include both longtime executives and others with their eyes toward the future. They’ll bring different perspectives on technology to the table. “If a technology person who is forward-thinking is not reporting to the board, then that bank is going to be falling behind,” says Booshan Rengachari of Finzly in Charlotte, N.C. He adds that if a community bank can, it should hire a chief innovation officer.
- Grow from your weakness
The first area to start, fintech experts say, is where you have weakness. “The best thing that banks can do is to recognize where they have flaws and partner with companies or hire people internally that can provide a strength,” says Donald Hawkins of Griffin Technologies in Overland Park, Kan.
Rengachari says Finzly first tries to be an adviser to community bankers to see if they can help where the banks have hurdles. “We try to be an adviser. Tell us your biggest challenges, and we’ll propose some options for you,” he adds. “If our solution is not the right solution for [a banker], we just tell them.”
Eric Best is deputy editor of Independent Banker.