Confessions of a FinTech Junkie

As difficult as it’s been, I’ve tried to beg borrow and steal time from my schedule about once a year to pull together a thought piece on something I find interesting that’s happening in the Fintech ecosystem. The first was a pretty long piece on the history and evolution of the Personal Loans space (The Hourglass Effect). The second was a slightly shorter tome that dove into the SMB Lending space (The Brave 100). And the most recent one was the shortest of the bunch and outlined a framework for the Future of Banking (The Copernican Revolution in Banking). Each of these thought pieces was meant to be provocative in some way (I can’t help myself), but it’s important to note that the controversy surrounding each of the pieces was entirely due to the fact that they scared some facet of the Banking or Fintech Ecosystem.

In the case of The Copernican Revolution in Banking, most of the noise came directly from the traditional Banks. So it wasn’t a surprise that shortly after the presentation was published I was invited to talk to a fair number of Banking Executives to discuss my framework and thoughts. And while each entity had its own views on how the future was going to play out, what I found interesting was that just about every conversation eventually steered into the territory of “Relationship Banking”.

The conversations sounded something like this:

Bank Executive: “We’ve been around for 200 years and have locations in our customers’ back yards. Everyone in our footprint knows who we are and what we do. So, how does Relationship Banking factor into your framework?”

Me: “What do you mean by Relationship Banking?”

Bank Executive: “Customers should prefer to buy additional products and services from us because they already Bank with us.”

Me: “Why?”

Bank Executive: “Because we’re their Bank”

Me: “Why does that matter?”

Bank Executive: “Because it should. We’ve been around forever and they know how to find us. They should prefer us over a Bank they’ve never worked with before or a Fintech company that’s only been around a few years.”

In all these conversations it was clear that the Banking Executives fundamentally believed that customers should prefer to consolidate their Banking activities with them vs. seek out point solutions for their needs. It was also clear they couldn’t define why this should be true. So I developed a simple test to help them sharpen their thinking. The sharing of the test questions and resulting answers sounded something like this:

Me: “Let’s ground the conversation by laying out a clear definition of three separate activities that can be used to describe Relationship Banking.

1) If you have enough information about your existing customers such that if they were to apply for any of your products and services the process would be streamlined relative to a new customer and/or you’d say yes to them when other providers would say no and/or the resulting product or service would cost them less than it would for a new customer then you’re engaging in Relationship Banking.

2) If you’ve collected information that allows you to proactively surface well targeted opportunities for your customers and these offers solve their emerging needs then you’re engaging in relationship Banking.

3) If you’re monitoring your customers and proactively moving them into the best products and services they qualify for then you’re engaging in relationship Banking.

So, let’s test whether or not you’re engaged in Relationship Banking.

Question #1: If a customer has a Bank account with your Bank and applies for a mortgage, is the process faster or cheaper for them than it would be for someone off the street?

Question #2: Do you collect information on your customers such that you know when they’ve begun to think about events like buying a new car, buying a house, starting a family or planning for retirement?

Question #3: If you create a new savings account with a higher interest rate than you’ve offered in the past do you proactively notify your existing customers about it and convert the terms of their old account to the better rate?”

Bank Executive: “No to all three.

Me: “As much as you’d like to think you have a relationship with your customers, you really don’t.  You’re executing transactions for vs. building relationships with them.”

This answer is very upsetting to Executives at Traditional Banks but they don’t know what to do about it let alone where to start. Their systems for the most part don’t talk to each other. Their interactions with existing customers are shallow and transactional which doesn’t leave room for collecting information about their future wants and desires let alone checking in with them from time-to-time to review any life changes or emerging needs. And the concept of proactively ensuring a Bank’s customers are always getting the best product or service it offers is plagued by major economic and process issues.

This is precisely why a new Banking model is emerging that’s founded on the basis of having:

• A modern tech stack with a comprehensive data layer
• An interactive and intuitive consumer interface
• A much more limited product suite with products that all talk to each other

If done right, Vertical Banking = Relationship Banking.

With this in mind, name a group of customers with similar wants and needs and there should be a Bank for that.

• Are you a well funded startup or profitable mid-market Business? There should be a Bank for you (a few are being built and we’re looking at one deeply right now).
• Are you a Landlord? There should be a Bank for you (we’re backing one).
• Are you a low/mid income hourly/gig worker? There should be a Bank for you (we’re seeing many Banking products and services emerge that could be consolidated into a unified product suite and nobody has cracked how to underwrite this population yet).

And what’s exciting is that these “Vertical Banks” are able to focus on the UX/UI/Data Layer as well as critical specialized functionality because there are middle-ware players that have emerged that allow them to connect to regulated Banking entities and deliver their services without actually becoming Banks themselves.  They can focus on building features that increase engagement, figuring out ways to collect data from their customers and serving up solutions that are streamlined and well targeted.

These are exciting times unless you’re an entity that offers hundreds of products that don’t talk to each other and are serving customers who aren’t sure you’re looking out for their best interests.  Then it’s going to be an exciting ride for a whole different set of reasons!