Innovation, partnership and community banking 2.0

Finovate’s flagship event, FinovateFall, took place at the Marriot Marquis Times Square in New York City in mid-September 2022. Despite a tough year for the fintech sector, the event welcomed a record attendance of more than 2,000 delegates, who enjoyed three days of insightful presentations, demos and networking.

Finovate is known for its signature seven-minute demos with more than 60 startups showcasing their technology on stage in 2022. Of the 2,000 attendees, more than 50% were financial institutions including representatives from all of the top 10 US banks.

Fintech continues to innovate

A challenging macroeconomic climate has seen a significant decline in the number of venture capital funding rounds during 2022, but US fintech continues to flourish. FinovateFall showcased a number of solutions in new areas including open banking, personalization and crypto.

One fintech that uses open banking as part of its proposition was Debbie, a best of show winner whose CEO, Frida Leibowitz, co-founded the startup after personally experiencing a viscous cycle of credit card debt. Frida was inspired to create a financial wellness platform that rewards consumers for paying off debt with the technology that can connect to any banking app platform. With rising interest rates and rising inflation showing no sign of abating, the US banking sector is going to be relied upon more than ever, and making financial products more accessible (and affordable) to consumers is imperative.

It wasn’t just fintech that was focused on innovation. I was surprised, perhaps naively, by the conversations I had with so many forward-thinking community bankers about their appetite for adopting new technology. The personalized user journeys of Visions Federal Credit Union, enabled by Finalytics.AI, which are curated to specific demographics and are on par with many modern neobanks. Unify Credit Union has recognized that consumers are increasing their appetite for alternative digital assets by enabling their members, via Nydig’s technology, to purchase and store cryptocurrency within their banking app.

Bank/Fintech partnerships under scrutiny

RegTech (regulatory technology) was a surprise success at FinovateFall with compliance platform startup Themis winning best of show. Several startups highlighted their regulatory capabilities during the demos, with regulators such as the OCC beginning to place greater scrutiny on bank/fintech partnerships. It was explained during a panel on ‘banking and fintech partnerships’ that regulators are starting to pay more attention to third-party partnerships due to the increasing complexity of the ecosystems that banks manage, and it is seen as a potential systemic risk.

Samuel Palmer, Head of Digital Wealth Planning, JP Morgan Wealth Management, explained their approach to partnerships during a panel discussing how analogue banks can compete with fintech “If that’s the core of our business, we tend to build ourselves. If not, we’re looking to partner with fintechs to launch the product faster.” As for JP Morgan, they sometimes go a step beyond a partnership with the show that coincides with the announcement that they had bought payments startup Renovite.

Audrey Miller, a partner at Tapestry VC, explained that banking collaboration with fintechs was not a new phenomenon “Visa and Mastercard were the original fintech partners, that’s not new. The difference now with partnerships is that technological innovation happens so quickly that regulation does not always follow, so as a bank you have to put more control on compliance at the start of the partnership.

Compliance is top of mind for many bankers and Themis, a platform designed to improve governance, risk and compliance workflows, and winning best of show was a nod to that. Wenni Wu, Chief Growth Officer at Piermont Bank, commented “compliance cannot be an afterthought, it is important. We are risk management providers”. Banking is ultimately a human business and especially important in a time of challenging macroeconomic conditions as you rely even more on your partners.

Community Banking 2.0

The other key theme observed at FinovateFall was around the evolution of community banking. Location and proximity used to be the most important factor when choosing a bank, you needed a branch that was convenient and customer support you could trust. However, the digital and fintech revolutions have changed that – a mobile is all you need to manage your finances 24/7.

Over the past decade, a third of US banks (many of which are community banks) have closed and a new wave of fintechs/neobanks have emerged that often don’t even have their own banking charters. Chime Bank is one such example, which uses the banking licenses of Bancorp and Stride Bank, and has amassed over 12 million customers to date. The shift to digital banking has increased expectations regarding customers’ relationships with their banks. They expect immediate support, real-time resolution and easy access to financial services relevant to their specific needs.

The new entrants in neobanks are emerging not only to serve specific needs but curated for specific communities, including Daylight (banking for the LGBTQ community), Nerve (banking for musicians), 11Onze (banking for Catalans), Panacea Financial (banking for doctors), and Moonbeam (banking services for military veterans). All of these communities have specific financial needs, whether it’s their preferred name on a bank card, or an easier way to collect royalties on music streams or budgeting when they are active in a military career.

The sense of community and shared value is still important in banking and provides an opportunity to develop. Banking is becoming increasingly commoditized, and to remain relevant, you need to understand the needs of your target customer and adapt your services to them.