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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


FINNOSUMMIT Miami by LendIt Fintech is Two Months Away

Latin America is the hottest region on the planet right now for fintech so we are excited to bring the LatAm fintech community to Miami.

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Investment in Latin American fintech is at an all time high. There is a huge amount of VC money flowing into this region and fintech is at the top of the list. The excitement is catching on all across LatAm with startups receiving funding in Brazil, Mexico, Colombia, Argentina, Chile and more.

This is why we decided to launch our newest event, FINNOSUMMIT Miami by LendIt Fintech, on December 3 – 4 in partnership with Finnovista. Our conference will capture the excitement of LatAm fintech by bringing together the startups who are reimagining finance in the region, the investors and the key players of this developing ecosystem.

Here at LendIt Fintech we take pride in producing industry leading content for our attendees. There are some clear trends we will be addressing this year.

Digital Banking Ecosystem

  • Banking is evolving and fintech is helping to accelerate these changes. This track will cover how banks and fintech firms are working towards creating a more inclusive banking system. Open banking, bank/fintech partnerships and digital only banking are helping to redefine how customers interact in their financial lives.

Lending Innovations

  • Expanding access to credit is one of the most fundamental needs in any developing economy. This track will discuss how companies are working with various data sources to extend credit to consumer and small businesses to help grow the regional economies.

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Can New Technology Providers Upend the Core Banking Market?

The biggest core banking providers have lost 20 percent market share in the last 5 years; will that trend continue and can new providers can real market share?

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Back in 2013 four core banking providers dominated the U.S. market owning a 96 percent share, that market share is now 76 percent as new players with fresh technology have entered the market. Banks and credit unions rely on core technology to process all deposits, payments, loans, most bank transactions and customer data.

With the advent of new technology there has been a growing group of companies looking to provide banks and credit unions with better options. Just in the past few weeks there were big investment rounds made into Alkami for $55mn and Synapse for $33mn.

The top four banking providers that dominated the market were FIS, Fiserv, Jack Henry and D+H (now Finastra). These providers have also started to innovate and provide new products in an effort to compete with new providers. Besides having a relationship with banks or credit unions for years these core providers have learned how their customers operate. This knowledge can help them to service customers and build a product set in a way that a new technology provider could not.

New firms like Alkami and Synapse have started to make inroads due in part to core providers providing technology that is not nearly as innovative. These new providers are, in many cases, not replacing core providers just yet, they are instead building tools that banks and fintechs can implement via API.

Banks have started to use more of the new technology because they feel a customer need to provide the best products or else risk losing them to bigger banks or digital only banks. For the better part of the last 30 years banks have been building new technology on top of legacy technology which has created a mess of systems.

This points to a wider trend in banking where traditional banks are being disintermediated by a group of smaller, more specialized companies. This trend also holds true in bank technology where fintech firms have started to provide certain technology that can help a bank or credit union provide a better experience and become more efficient

Even the bigger banks who are able to spend billions on technology use about half of their budgets to upkeep technology they feel is dated and does not work efficiently.

We have not yet reached the point where core providers are being completely replaced, especially as they are also innovating in an attempt to stay ahead. Losing 20 percent market share in 5 years is something they need to grapple with.

Are Digital Banks Struggling to Get Traction?

A new survey suggests that digital banks are not getting much traction yet but there is more to the story

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An article in Forbes earlier this month about the traction of digital banks caught my attention. A survey of U.S. consumers conducted by Cornerstone Advisors showed that traction among many of these new neobanks (I use this term and digital bank interchangeably in this article) is not happening as quickly as many of us expected. According to the survey only 3% of millennials have their primary checking account at a digital bank like Chime, Simple or Moven.

The survey also found that only 7 million deposit accounts have been opened at digital banks and that only Ally, Chime and BankMobile have more than one million deposit accounts. Simple, the first digital neobank to launch almost 10 years ago, has just 517,000 accounts according to the survey.

Now, when Chime announced they had raised $200 million in March they claimed to have opened 3 million FDIC-insured bank accounts. So, it is quite possible this survey is undercounting the total or that maybe there is a difference between an open account and a funded one. Regardless, we have a long way to go before any digital bank can challenge the size of even a midsized regional bank.

There are, of course, many other neobanks not included in the survey. At LendIt Fintech USA 2019 last month the CEO of MoneyLion, Dee Choubey, said that his company has more than 4 million users today. Another example is Square Cash, which has over 15 million monthly active users and with the debit card some consumers are using this as a primary bank account. So, one could even include Square Cash as a neobank (Square is in the process of applying for a banking license).

All this should be put in the context of a special report in The Economist earlier in the month with the cover exclaiming “Tech’s raid on the banks”. One of the many interesting stories in that report was about “Flanker banks” where banks create a new brand to compete with themselves. We have seen that at JPMorgan Chase with Finn and Greenhouse by Wells Fargo and there are numerous examples internationally. But according to the Cornerstone Advisors survey Finn is not getting much traction yet – their number of 47,000 accounts is surprising, if not shocking, to me. Greenhouse is still in limited rollout.

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Well Fargo Outage Points to Opportunity in Digital Banking

Wells Fargo finds itself in a tough position after bank goes offline for almost 24 hours.

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Wells Fargo is still digging out from a PR disaster last week when the bank went offline for a large segment of customers due to a fire alarm triggered in a server facility in Minnesota. Customers could not access the mobile app, the website or ATMs. The incident has been used to highlight how big an opportunity there is for fintech firms or more nimble banks.

What the outage shows is that bank infrastructure is still stuck in the past, analysts rightly asked why Wells Fargo did not have the bank running on a cloud based system.

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Is SoFi Money the Bank Account of the Future?

I recently opened up a SoFi Money account, here is my review

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I signed up to the SoFi Money waiting list soon after they opened it back in June of last year. I learned earlier this month that I was now off the list and ready to open an account. So I did (you can get started with $50 by opening an account through this affiliate link).

I have had a relationship with a top 10 bank for more than 26 years. Actually, that is not completely accurate. This large bank bought the mid-sized regional bank, where I had opened an account in 1993, about 20 years ago and hence I became a customer by default. They provide an adequate experience but nothing differentiates their offerings from the other large banks. If it was easy to switch banks I would have done so years ago, so they have maintained my business not out of loyalty but out of inertia. I know I am not alone in this.

Anyway, back to SoFi Money. It is not truly a SoFi bank account because SoFi is not a bank. They are able to offer bank-like services because of a partnership they have with WSFS Bank, a Delaware based bank with a history dating back to 1832. SoFi and WSFS Bank first announced their partnership in December 2017.

There are three main benefits that SoFi touts with the SoFi Money account:

  1. Pay zero account fees.
  2. Earn more interest.
  3. Free ATMs everywhere.

What appealed to me most was the interest. SoFi will pay (as of this writing) 2.25% on balances held in a SoFi Money account. Note about the small print: you will only earn this 2.25% for the first three months and then the interest rate drops to a (still respectable) 1.25% unless you do one of two things. Either setup a salary direct deposit of $3,000 or more a month or do $500 in debit card transactions each month. I am in the process of moving my salary deposit to my SoFi Money account.

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P2P Lender Zopa Granted a Banking License in the UK

The world first P2P lender has achieved another first with the approval of a banking license from regulators in the UK

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CEO of Zopa, Jaidev Janardana, speaking at LendIt Fintech Europe 2018

Back in 2005 Zopa quietly launched their P2P lending platform in the UK, the world’s first. It was the start of a lending revolution that has moved on to all corners of the globe. Today, a new chapter begins as the company announced that regulators have approved Zopa’s banking license. With that Zopa achieves another first: becoming the world’s first combined peer to peer lending platform and digital bank.

When Zopa first announced that they were applying for a banking license back in November 2016 some criticized the move. The company was started as an alternative to banks and by becoming a bank some critics thought they were selling out their original vision. But Zopa brushed off the criticism with CEO Jaidev Janardana arguing that most large banks were not giving consumers what they wanted. Zopa had built a culture of customer centricity and they wanted to extend that into a new kind of bank (for more see Jaidev’s keynote at LendIt Europe 2017 as well as his fireside chat interview from this year’s event).

Zopa has officially been granted a banking license with “restricted approval” which means that it can’t launch just yet. They will enter what is called the “mobilization phase”, this is a normal part of the approval process where it needs to “meet conditions set by the regulators, including testing our new products”. Once it satisfies these conditions Zopa will be granted a full banking license.

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Customer Alignment and The Future of Banking

The bank of the future will have a business model that is designed to win when customers win

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I have been thinking more about customer alignment lately. We are adding this category in the LendIt Fintech Awards in 2019 as Scott Sanborn, the CEO of LendingClub mentioned in his opening keynote in April. It is an issue which gets to the heart of what is wrong with banking today and how fintech can help create change.

First, let me begin with a personal story. I have had a banking relationship with the same large bank since 1993. I opened two accounts, business and personal, when I was getting my first business off the ground. Needless to say money was really tight. I would occasionally bounce checks and I used credit cards as a way to borrow money but I managed to get by. What I really needed back then, but didn’t have, was a financial institution that had my best interests in mind.

I remember one time when I mailed a batch of checks without the money in the bank but was confident by the time the checks were deposited the money would be there to cover them all. It wasn’t. So, I ended up bouncing four or five checks and paying a fortune in overdraft fees. But here was the kicker. The bank could have processed two of these checks but instead the largest one came out first, so all the checks bounced.

Thankfully not all banks do this but it is common practice in many banks and back in the 1990s I am guessing it happened a lot more. But I believe the days are numbered for this kind of program.

A Win-Lose Proposition is a Losing Game

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How Goldman Sachs Created Marcus To Be a Dominant Force in Consumer Banking

In just two years the Goldman Sachs digital initiative called Marcus has changed the banking landscape

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[Editor’s note: This article was written for our Chinese audience and will be translated into Mandarin and released with several other articles at the Lendit Fintech China conference in Shanghai in September.]

It all began at the home of a senior Goldman Sachs executive in the summer of 2014. A select group of leaders were there to discuss new growth opportunities for the firm. They wanted to start a new line of business where there was a large unmet customer need and where Goldman Sachs could leverage its resources to gain a competitive advantage in the market.

After 145 years serving only the very wealthiest of clients it was decided that they would launch a consumer bank. In reality, they already had a banking license because during the financial crisis they opted to become a bank holding company. But for years they had never really used this to launch any new products. That changed in 2016.

First, there was the launch of GS Bank in April 2016. Six months later Goldman Sachs introduced the world to their Marcus brand. They began as an online lending platform offering unsecured consumer loans up to $30,000 with interest rates ranging from 5.99% to 22.99% (they now offer loans up to $40,000 and rates range from 6.99% to 24.99% as of August 2018). Their big differentiator was offering no fees. There was no origination fee for the borrower, no prepayment fees and no late fees.

They gained traction very quickly. They crossed $1 billion in total originations within eight month of launch. At the end of their first year they were at $1.7 billion. At that time they brought their deposit business under the Marcus brand, it was formerly branded under GS Bank. Now when you go to the Marcus website you are presented with two options: personal loans and savings accounts (which includes certificates of deposits).

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Five Things That Excite Me About Fintech Today

There is more change happening in fintech today than ever before but here are five themes that are particularly exciting

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When I started LendIt with my fellow co-founders back in 2013 I was most excited about how online lending could disrupt the banking system. I felt that we were at the beginning of a paradigm shift in banking and that the online lenders would soon rule the world. While it hasn’t turned out exactly like that I am actually more excited today about where finance is heading than ever before.

Today, there are many things that excite me about fintech, here are five themes that I find particularly exciting.

1. Advances in Data Analytics

I have said before that data science is becoming the most important skill in fintech. There is more data generated today than at any time in human history and we need new ways of analyzing this data. Advances in artificial intelligence and machine learning have meant we can now make sense of this vast amount of data.

There are so many benefits to finance of these advances but the most important one I think is what it means to the underserved consumers around the globe. Advanced data analytics combined with the increased use of mobile phones in the developing world means for the first time everyone has the potential to be connected to the financial system. This is going to have huge ramifications globally over the next decade.

2. Blockchain and Distributed Ledger Technology

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Digital Open Banking – A Millennial’s View

Millennials will be the driving force behind the changes coming to banking.

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One of the trends we’ve seen recently is the rapidly shifting digital banking landscape and the focus on serving the tech savvy millennial generation. My personal experiences navigating our current financial system have formed my views on digital banking and beyond. I currently have bank accounts at a local credit union, a larger regional bank in the state I live in and Ally, an online only bank. I’ve gone through the process of applying for three mortgages at three different banks. As a millennial there are four key areas that I believe banks of the future should focus on.

Simplicity

Instead of focusing on adapting traditional banking services, banks should look to make their services more streamlined. SoFi’s newly launched beta product SoFi Money is a perfect example. They have decided to do away with checking and savings accounts altogether and have rolled them into one easy to understand current account paying 1.1% interest.

Another good example is Goldman Sachs’ Marcus savings account. I recently setup an account to better understand their approach to banking. Marcus currently offers three products: savings, CDs and personal loans. They offer some of the highest interest rates on deposits and competitive interest rates on personal loans. Marcus has taken a minimalist approach to the user experience by offering all the actions you can take front and center.

No Fees

It amazes me with the offerings that exist today that some banks still manage to charge for services that are free at the highest rated banks. Requirements such as minimum account balances or monthly deposits eventually will be a thing of the past as the traditional banks catch up.

Features such as transferring money to any other US financial institution should be free. International money transfers can all be done for a fair price through Transferwise or a similar service.

Customer Support How and When You Need It

Millennials can be demanding when it comes to customer service. Since we often are not banking during the business hours we need support during nights and weekends. Banks should make it a priority to be able to address a wide range of requests in whichever way the customer would like to be helped, whether it be phone, email or chat. One of the main problems I see today is either a lack of a chat option altogether or the inability to authenticate users to truly resolve issues over chat. This is the method I prefer when seeking customer support even beyond banking.

Integration and Open Banking

More and more I am logging into apps such as Personal Capital to get an overview of my financial life. These types of apps have the opportunity to be the front end to our entire banking experience and there are tremendous opportunities as open banking begins to take hold in the US. Those that embrace the inevitable advent of open banking will be successful over the long term. It is becoming apparent that customers will receive solutions from multiple vendors as banks begin to focus on being world class at a select few services instead of trying to provide every service.

Conclusion

I expect we will experience a radical shift in banking over the next five years. More Americans will become comfortable with online only banks as more complicated services such as mortgages move online. The local branch experience will change substantially and even the way we think about banking will change. Millennials will be the generation that drives this change and the newer entrants in this space have the potential to leapfrog the incumbents.

ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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