We recently sat down to chat about the state of fintech with David Gerbino. David is a data-driven marketing consultant for banks and fintech startups who also serves as a board member and director of marketing strategy for NYPAY, New York’s leading forum for innovators in payments and mobile commerce. You can follow him on Twitter here.
In this interview we talk about whether financial institutions and fintech startups are friends or foes and what the latest is at Finovate and NYPAY.
You can listen to the podcast version here and read the lightly edited transcript below.
Some financial institutions worry that fintech startups are a threat. Do you agree or disagree with that sentiment?
As many people have been aware, there’s been a lot published over the last several months, from Citi to some of the large advisory firms, about how fintech is going to take a lot of business away from banks over the next decade.
I don't want to say they’re wrong because a lot of what they wrote about is correct. However, I feel that some of the research ignores the type of fintech that goes on inside banks today and that, quite honestly, banks have been bringing in for decades.
One of the single differences we’ve had over the last decade is the amount of investment from VC funds in fintech companies that were started by executives who left other tech providers and were using other sources of funds to start their businesses. The pace of creation of companies has vastly increased, but it’s not all against the banks. Many of them are helping banks. So when we talk about change or disintermediation, we’ve got to recognize it can happen within the bank. If you’re a bank who offers the best in fintech, you now have a differentiating piece from your competitor who just does checking accounts.
There are a ton of examples of fintech companies that help banks. One of my favorites outside of MX is a company in California called CUneXus. They let consumers originate loans by literally touching an icon on a mobile app because they’ve prescreened all different types of loans that each bank sets up and have configured to their policy. So now instead of trying to figure out how do we market and get loans, these guys are there when you’re ready and they’ve done their job of letting their customer base know this tech exists with their bank. When the customer starts thinking, “I need funding for something…” they know they can go to their app and check, and that’s exciting.
A lot of the press is focused on P2P and marketplace lending and how that will totally disrupt a lot of the lending going on at banks. When you have a company like CUneXus that makes it so much easier, it shows the power of partnerships between banks and fintech companies. That’s why I’m so bullish about fintech inside banks and credit unions.
So you're saying it’s incorrect to automatically assume that fintech companies are competing against financial institutions because so many fintech companies are actually working with them?
Yes, somewhere along the way the message was that fintech companies are against banks and going direct to the customer.
I should note that banks and credit unions are the ones that invited this behavior by ignoring the customer for so many years. The door was left wide open for these fintech companies and they’re coming in. And that’s awesome. It just means that there are more opportunities for people to get financial services. But, again, fintech companies aren’t just fighting financial institutions. Many are joining with them.
Are you bullish on the fintech companies that partner with banks because you see that customers will first go to their financial institution when seeking a financial product?
I’m not saying they’re going to go there first, but it seems obvious that many will. If you’re already with a financial institution and you have the capabilities, why not?
Of course, some consumers might be disappointed with the tech offerings at their banks and credit unions, especially if the financial institutions treat tech like a checklist and aren’t doing the innovative things they should be doing. This has a lot of consumers looking elsewhere.
To this day I don’t understand why there is not a bank in the US equaling the capabilities of Moven. It just hasn’t happened. I don’t get that. What Moven does in and around debit transactions is awesome, seeing what you spent your money on nearly instantaneously and within a framework of spending. [Editor’s Note: Watch the MX / Moven case study here.]
Those are the types of things that banks should have been doing all along. They’re not. You know, from my perspective as someone who’s built models at banks in and around profitability, there are a great many areas of opportunity for banks and credit unions to improve what they’re doing.
Sometimes it seems counterintuitive to do things for the customer base, but why wouldn’t you want to partner and do the things that allow you to grow deposits and make a customer smarter? Whether it’s retail or business, if you’re making that banking customer smarter, helping them save, you’re increasing average deposits which goes to profitability. You’re getting them in a better situation so they can afford a loan. People who have bad finances really can’t get loans but people who have good finances can get loans. It kind of feeds itself.
Do you think that the financial institutions that partner with fintech providers have the advantage because of the networks they’ve already built up?
Well, it comes down to scale, right? Banks and credit unions collectively have hundreds of millions of account holders while fintech startups don’t. The easy example is OnDeck Capital out of New York. They go after small businesses, and banks don’t want to do that. As a former community banker, I used to hate those loans. They were a lot harder and had a lot more regulatory scrutiny. But anyway, OnDeck is able to lend to companies that banks don’t. They can come in earlier, which gives them an advantage.
OnDeck got a lot of great press with their Chase deal. Enhancing Chase's ability to get funding out to businesses, take advantage of that lending platform or origination process that OnDeck has because they’ve been able to look at other sources of data. You think of it in terms of R&D, now by coming together OnDeck is going direct, partnering up with banks. That becomes the win win for everyone involved. It’s a win for people who have great ideas at startups that maybe can’t be done inside a bank. They can start it, they can do their proof of concept. There’s nothing wrong with combining and working with incumbent institutions. They’re not enemies. Why not partner with and be also a provider to a bank? That’s another source of income and revenue.
The point is it’s all coming together and it benefits everybody. It greatly enhances capabilities around the area of financial inclusion. There are so many people in America who have challenges around financial products and services. The combination of banks, credit unions, and fintech startups gives these people the opportunity of joining in. Now we’re looking at alternative streams of data which allows more people to be included vs. excluded. That whole area in itself is extremely bright, and that brightness is a direct result of a lot of people coming out with great ideas getting the funding and bringing people in. It’s awesome.
Speaking of innovation, you’ve been attending Finovate for many years now. What trends have you noticed since when you first started to this most recent Finovate?
It’s grown tremendously, for one thing. It’s not just the number of people going, it’s the types of people you see there. For me, it’s really awesome that at the last Finovate Fall in New York I got to hang out with some folks from Avidia Bank, a community bank in Massachusetts, as well as folks from a large credit union in Long Island. That to me is the best piece. Finovate is full of people from all avenues of the financial services industry and that is the best change as far as I’m concerned.
In addition, the types of products at Finovate have changed. Early on you didn’t see a lot with business, but now you’re seeing products on that front, whether it’s with commercial or small business. That’s been great. There have also been a lot of things with investment advisory and robo advisory. Those are all positive things.
We of course also have the Finovate bingo card where we all like to poke fun at each other. It’s a fun industry.
Let’s talk about what NYPAY has been up to you. What events should people be aware of in this space?
NYPAY focuses mostly in the payments industry. We used to put on 4 or 5 events a year, and now we’re doing about 1 a month. We’ve challenged ourselves to do more, and we’re really trying to bring people together to talk about fintech, payments, or whatever else is happening in our space.
Our next event is April 13 and we’re focusing on the blockchain’s impact on payments intermediaries. We try to bring interesting people together on panels to talk, and we try not to do the traditional talking head, where you sit there for an hour and listen and do a Q&A. We try to make it more interactive and allow people to interrupt and ask questions throughout.
With our blockchain event we’ll have someone coming from R3, the consortium of global events, someone coming from Ripple, and someone coming from JP Morgan Chase. It’s being headed and moderated by Deloitte Consulting from the principal global blockchain leader. We’re also livestreaming the next event so anybody can participate at least in the panel portion.
Our intent is to take at least the panel portion and share that globally because we do have people from all over the world who have attended our events in NY. We really want to get the message out there because a lot of our members say they can’t go and want it videoed. Maybe they see us once a year at our annual conference so this is a great way for us to expand what we’ve been doing.
Finally, what are you most looking forward to in this industry?
I’ve been fascinated about the technology behind the internet of things (IOT) for a long time. Before the current buzz, there was a bridge disaster in Ohio and the theory was there were some signals that could have been captured there. So my alma mater, Clarkson University, was involved in getting sensors put on the replacement bridge. That’s the precursor to the internet of things. I found that fascinating.
I was invited out to the IBM Insight conference by IBM, mainly for financial services but I found myself exciting about all the things they were doing around IOT. For instance, they were using sensors on farms, so bankers would only disburse a loan to the farmer if there was enough water to make the loan worthwhile. I found that fascinating.
In contrast, I think there some stupid use cases, such as a smart refrigerator that will order your milk. Who’s going to send out an individual to deliver milk?
I’m interested in the efficiencies IOT can bring to banking indirectly. Is there an opportunity for banks to help more on the commercial side, to lend businesses money to build smart buildings so the heating and cooling costs can come way down by properly retrofitting heating or cooling — to make use of the data out there so those costs come down. That sort of thing.
That’s exciting. Anything else you’d like to say as we wrap up?
Sure. I’m in the process of writing something I hope to publish at The Financial Brand about lending innovation for banks and credit unions. One of the startups I advise, InSpirAVE, basically brings together a way of saving for products and services and paying for them later — combining fintech and e-commerce. It’s a fascinating and challenging product idea, and I’m excited to see where it goes.
Additional resources from David:
White paper on bank profitability (with Jeff Marsico)
American Banker article: Where is the innovation?