Finovate’s flagship event, FinovateFall, took place at the place at the Marriot Marquis Times Square in New York City mid-September 2022. Despite a tough year for the fintech sector, the event welcomed a record-breaking attendance of more than 2,000 delegates, which enjoyed three days of insightful presentations, demos, and networking.
Finovate is known for its signature seven-minute demos with more than 60 start-ups showcasing their technology on the 2022 stage. Of the 2,000 attendees, more than 50% were financial institutions including representatives from all 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 is continuing to flourish. FinovateFall showcased a range of solutions in emerging areas including open banking, personalization and crypto.
One fintech that utilizes 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 able to be plugged into any banking app platform. With rising interest rates and increasing inflation seeing 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 paramount.
It wasn’t just fintechs that were focused on innovation. I was taken aback, perhaps naïvely, by the conversations I had with so many forward-looking community bankers in terms of their appetite to adopt new technology. The personalized user journeys from Visions Federal Credit Union, enabled by Finalytics.AI, which are curated to specific demographics and are on a par with many modern neobanks. Unify Credit Union has acknowledging consumers growing appetite for alternative digital assets by enabling its 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 hit at FinovateFall with compliance platform startup Themis winning best of show. Several start-up companies highlighted their regulatory capabilities during the demos, with regulators such as the OCC starting to place greater scrutiny on bank/fintech partnerships. It was explained during a panel on ‘banking and fintech partnerships’ that regulators are starting to take more notice of third-party partnerships due to the growing complexity of the ecosystems that banks are managing, and it is seen as a potential systemic risk.
Samuel Palmer, Head of Digital Wealth Planning, JP Morgan Wealth Management, explained their approach to partnership during a panel discussing how analogue banks can compete with fintech “if its core to our business, we tend to build ourselves. If not, we look to partner with fintechs to launch the product faster”. In the case of JP Morgan, they sometimes go a step beyond a partnership with the show coinciding with the announcement that they had acquired payments start-up Renovite.
Audrey Miller, a Partner at Tapestry VC explained that bank partnering with fintechs was not a new phenomenon “Visa and Mastercard were the original fintech partners, it’s not new. The difference now with partnerships is that technology innovation is happening so fast that regulation doesn’t always keep up, so as a bank, you need to put more scrutiny on compliance at the start of partnership”.
Compliance is top of mind for many bankers and Themis, a platform that is designed for enhancing governance, risk, and compliance workflows, winning best of show was a nod to that. Wenni Wu, Chief Growth Officer at Piermont Bank, commented “compliance can’t be an aftermath, it’s essential. We are risk management providers”. Banking is ultimately a people business and particularly important at the time of challenging macroeconomic conditions as you rely on your partners even more.
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 your bank, you needed a branch that was convenient and customer support you could rely on. However, the digital and fintech revolutions has 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 charter. Chime Bank is one such example, utilizing the banking licenses of Bancorp and Stride Bank, and has amassed over 12 million customers to date. The shift to digital banking has raised expectations around customers’ relationships with their banks. They expect instant support, real-time resolution, and easy access to financial services that are relevant to their specific needs.
The new entrants of 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 Catalonians), Panacea Financial (banking for doctors), and Moonbeam (banking 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 active in a military career.
The sense of community and shared valued remains important in banking and presents an opportunity to evolve. Banking is becoming increasingly commoditized and to stay relevant, you need to understand the needs of your target customer and personalize your services to them.