Fintech – Page 5 – About That Ratio

February 23, 2016February 23, 2016

FinTech Day is One Week Away

The fabric of the financial industry continues to evolve as new technology players emerge and traditional participants transform their business models. Through partnerships, acquisitions or direct investments, incumbents and upstarts alike have many real and distinct opportunities to grow and scale. If 2015 was all about startups talking less about disruption and more about cooperation, I see 2016 as the year that banks reciprocate.

By Al Dominick, President & CEO, Bank Director

Next Tuesday, at Nasdaq’s MarketSite in Time Square, our team hosts our annual “FinTech Day.” With so many new companies pushing their way into markets and product lines that traditionally have been considered the banking industry’s turf, we look at what fintech means for traditional banks. Likewise, we explore where emerging fintech players may become catalysts for significant change with the support of traditional players. When it comes to trends like the personalization of banking, the challenges of scaling a company in our highly regulated industry and what shifting customer expectations portend for banks and fintechs alike, we have a full day planned. Take a look at some of the issues we will address.

Riding The Wave Of Change
Al Dominick, President & CEO, Bank Director
Robert H. McCooey, Jr., Senior Vice President of Listing Services, Nasdaq

At a time when changing consumer behavior and new technologies are inspiring innovation throughout the financial services community, we open this year’s program with a look at how collaboration between traditional institutions and emerging technology firms bodes well for the future.

Banking’s New DNA
Michael M. Carter, CEO, BizEquity
Vivian Maese, Partner, Latham & Watkins
Eduardo Vergara, Head of Payments Services & Global Treasury Product Sales, Silicon Valley Bank
Moderated by: Al Dominick, President & CEO, Bank Director

With continuous pressure to innovate, banks today are learning from new challengers, adapting their offerings and identifying opportunities to collaborate. With this opening session, we focus on the most pressing issues facing banks as they leverage new tools and technologies to compete.

Who Has the Power to Transform Banking
Jeana Deninger, Senior Vice President, Marketing, CoverHound, Inc.
Brooks Gibbins, Co-Founder & General Partner, FinTech Collective
Colleen Poynton, Vice President, Core Innovation Capital
Moderated by: Al Dominick, President & CEO, Bank Director

While fintech startups continue to spearhead the technological transformation of financial services, recent efforts by systemically important financial institutions call into question who reallly has the power to tranform banking. From an investment perspective, recent market turmoil may put some opportunities on hold – while others now have a higher, sharper bar to clear. In this session, we talk to investors about the traits that they look for when backing a venture in the context of a changing economic environment.

Opportunities to Reinvigorate the Banking Industry
Tom Kimberly, General Manager, Betterment Institutional
Thomas Jankovich, Principal & Innovation Leader, US Financial Services Practice, Deloitte Consulting LLP
Pete Steger, Head of Business Development, Kabbage, Inc.
Moderated by: Al Dominick, President & CEO, Bank Director

Many fintech companies are developing strategies, practices and new technologies that will dramatically influence how banking gets done in the future. However, within this period of upheaval – where considerable market share will be up for grabs – ambitious banks can leapfrog both traditional and new rivals. During this hour, we explore various opportunities for financial services companies to reinvigorate the industry.

Opportunities to Financially Participate in Fintech
Joseph S. Berry, Jr., Managing Director, Co-Head of Depositories Investment Banking, Keefe, Bruyette & Woods, Inc. A Stifel Company
Kai Martin Schmitz, Leader FinTech Investment LatAm, Global FinTech Investment Group, International Finance Corporation
Moderated by: Al Dominick, President & CEO, Bank Director

While large, multinational banks have made a series of investments in the fintech community, there is a huge, untapped market for banks to become an early-stage investor in fintech companies. Based on the day’s prior conversations, this session looks at opportunities for banks to better support emerging companies looking to grow and scale with their support.

While this special event on March 1 is sold out, you can follow the conversations by using #Fintech16 @aldominick @bankdirector @finxtech and @bankdirectorpub. And as a fun fact, I’ll be ringing the closing bell next Tuesday flanked by our Chairman and our Head of Innovation. So if you are by a television and can turn on CNN, MSNBC, Fox, etc at 3:59, you’ll see some smiling faces waving at the cameras.

December 23, 2015

Bank Director’s annual Tech Issue is now available for free

Take a look at Bank Director’s just-published “Tech Issue.” In it, we look at how bank CEOs and executive teams can better engage with fintech companies, what the biggest banks are doing in terms of technology strategy and what the Internet of Things (IoT) means for financial institutions in 2016.

To download this free issue:

On Your Tablet or Mobile Device, Select Apple’s AppStore, Google Play or Amazon’s Apps;
Search “Bank Director Digital Magazine;” and
Download the App to Your Digital Device & Enjoy.

Happy Holidays!

November 18, 2015November 18, 2015

Size & Scale: The King and Queen of Bank M&A?

Earlier this week, I shared my perspectives on bank M&A with the Wall Street Journal. What follows builds off the piece that ran in Tuesday’s print edition, highlighting key findings from Bank Director’s annual Bank M&A Survey.

By Al Dominick // @aldominick

At a time when J.P. Morgan is getting smaller, the pressure is on for smaller banks to get bigger. As KPMG recently shared with BankDirector.com, there was a 25% increase in bank deals in the U.S. in 2014, compared to 2013, and there is a good possibility that the number of deals in 2015 will exceed that of 2014. One reason for this: a larger institution can spread costs (such as investments and regulatory burdens) across a larger customer and revenue base.

Not surprisingly, 67% of executives and board members responding to Bank Director’s 2016 Bank M&A Survey say they see a need to gain more scale if they are going to be able to survive in a highly competitive industry going forward. As our director of research, Emily McCormick, shared, “many of these respondents (62%) also see a more favorable climate for bank deals, hinting at a more active market for 2016 as banks seek size and scale through strategies that combine organic growth with the acquisitions of smaller banks.”

While the majority of bank executives and boards surveyed feel a need to grow, respondents don’t agree on the size banks need to be in order to compete today. A slim majority, 32%, identified $1 billion in assets as the right size… interesting, but not surprising, when you consider that 89% of commercial banks and savings institutions are under $1 billion in assets, according to the FDIC (*personally, I’m of the opinion that $5Bn is the new $1Bn, but that’s a topic for another day). On to the key findings from this year’s research:

Two-thirds report their bank intends to participate in some sort of acquisition over the next 12 months, whether it’s a healthy bank (51%), a branch (20%), a nondepository line of business (14%), a loan portfolio (6%) and/or a financial technology firm (a scant 2%).

Respondents indicate that credit culture, at 32%, and retaining key talent that aligns with the buyer’s culture, at 31%, are the most difficult aspects of the post-merger integration process.

More institutions are using social media channels to communicate with customers after the close of the deal. 55% of respondents who purchased a bank in 2014 or 2015 used social media, compared to 42% of 2011-2013 deals and just 14% of 2008-2010 deals (*FWIW, Facebook, at 26%, is the most popular channel for respondents).

Fifty-six percent of respondents have walked away from a deal in the past three years. Of the respondents who indicate they declined to buy, 60% cite deal price while 46% blame the credit quality of the target institution.

Why do banks sell? Of the executives and board members associated with banks sold from 2012 to 2015, 55% say they sold because shareholders wanted to cash out. Despite concerns that regulatory costs are causing banks to sell, just 27% cite this burden as a primary motivator.

The full survey results are now available online at BankDirector.com, and will be featured in the 1st quarter, 2016 issue of Bank Director magazine. In addition, for those executives interested in connecting with many of the key decision makers driving the deals mentioned above, our annual Acquire or Be Acquired Conference will be held at the Arizona Biltmore from January 31 through February 2.

Our 2016 Bank M&A Survey, sponsored by Crowe Horwath LLP, examines current attitudes and challenges regarding bank M&A, and what drives banks to buy and sell. The survey was completed in September 2015 by 260 chief executive officers, independent directors and senior executives of U.S. banks, and former executives and directors of banks that have been acquired from 2012-2015.

October 14, 2015

How Fintech Mergers Are Reshaping Banking

I am in Seattle to host a peer exchange at the Four Seasons — one focused on emerging legal, regulatory and risk issues facing members of the board of financial institutions. As eager as I am to welcome participants to this beautiful property and city, I have to admit that my attention this morning centers on M&A in the fintech space (thanks to this piece I authored for BankDirector.com). So before the day ramps up, I thought to re-post my perspectives on interesting deals that are reshaping banking.

By Al Dominick // @aldominick

It’s no secret that what has been happening in the fintech space is attracting more attention from the world of banking. It’s hard to ignore the fact that venture capital invested $10 billion in fintech startups in 2014, compared to just $3 billion in 2013, according to an Accenture analysis of CB Insights data. But watching M&A in the fintech space shows that these startups are much more likely to pair with others or get acquired by incumbents than they are to go public with an initial public offering, as noted by bank analyst Tai DiMaio in a KBW podcast recently. “Together, through partnerships, acquisitions or direct investments, you can really have a situation where both parties benefit [the fintech company and the established player],’’ he says. That may lend credence to my initial suspicions that there are more opportunities in fintech for banks than threats to established players and that these startups really need to pair up to be successful.

Take BlackRock’s announcement in August that it will acquire FutureAdvisor, a leading digital wealth management platform with technology-enabled investment advice capabilities (a so-called “robo advisor.”) With some $4.7 trillion in assets under management, BlackRock offers investment management, risk management and advisory services to institutional and retail clients worldwide—so this deal certainly caught my attention.

According to FT Partners, the investment bank that served as exclusive advisor to BlackRock, the combination of FutureAdvisor’s tech-enabled advice capabilities with Blackrock’s investment and risk management solutions “empowers partners to meet the growing demand among consumers to engage with technology to gain insights on their investment portfolios.” This should be seen as a competitive move to traditional institutions, as demand for such information “is particularly strong among the mass-affluent, who account for ~30 percent of investable assets in the U.S.”

Likewise, I am constantly impressed with Capital One Financial Corp., an institution that has very publicly shared its goal of being more of a technology company than a bank. To leapfrog the competition, Capital One is quite upfront in their desire to to deliver new tech-based features faster then any other bank. As our industry changes, the chief financial officer, Rob Alexander, opines that the winners will be the ones that become technology-focused businesses—and not remain old school banking companies. This attitude explains why Capital One was the top performing bank in Bank Director’s Bank Performance Scorecard this year.

Case-in-point, Capital One acquired money management app Level Money earlier this year to help consumers keep track of their spendable cash and savings. Prior to that, it acquired San Francisco-based design firm Adaptive Path “to further improve its user experience with digital.” Over the past three years, the company has also added e-commerce platform AmeriCommerce, digital marketing agency PushPoint, spending tracker Bundle and mobile startup BankOns.

When they aren’t being bought by banks, some tech companies are combining forces instead. Envestnet, a Chicago-based provider of online investment tools, acquired a provider of personal finance tools to banks, Yodlee, in a cash-and-stock transaction that valued Yodlee at about $590 million. By combining wealth management products with personal financial management tools, you see how non-banks are taking steps to stay competitive and gain scale.

Against this backdrop, Prosper Marketplace’s tie up with BillGuard really struck me as compelling. As a leading online marketplace for consumer credit that connects borrowers with investors, Prosper’s acquisition of BillGuard marked the first time an alternative lender is merging with a personal financial management service provider. While the combination of strong lending and financial management services by a non-bank institution is rare, I suspect we will see more deals like this one struck between non-traditional financial players.

There is a pattern I’m seeing when it comes to M&A in the financial space. Banks may get bought for potential earnings and cost savings, in addition to their contributions to the scale of a business. Fintech companies also are bought for scale, but they are mostly bringing in new and innovative ways to meet customers’ needs, as well as top-notch technology platforms. They often offer a more simple and intuitive approach to customer problems. And that is why it’s important to keep an eye on M&A in the fintech space. There may be more opportunity there than threat.

October 8, 2015October 9, 2015

5 Fintechs I’m Keen On

My first post in 2015 focused on three “up & coming” fintech companies: Wealthfront (an automated investment service), Kabbage (an online business loan provider) and Dwolla (a major player in real-time payment processing). Since writing that piece, I’ve kept tabs on their successes while learning about other interesting and compelling businesses in the financial community. So today, five more that I am keen on.

By Al Dominick // @aldominick

With continuous pressure to innovate, I’m not surprised to see traditional financial institutions learning from new challengers, adapting their offerings and identifying opportunities to collaborate with emerging players. From tokenization to integrated payments, security tools to alternative lending platforms, the investments (and efforts) being made throughout the financial sector continues to impress and amaze me. As I shared in 15 Banks and Fintechs Doing it Right, there are very real and immediate opportunities to expand what banking means to individual and business customers. Personally, I am excited by the work being done by quite a few companies and what follows are five businesses I’ve learned more about while recently traveling between D.C., San Francisco and New York City:

i2c, a global card processing company, provides back-end processing and settlement for cards, virtual accounts and mobile payments. What’s interesting about them? According to a brief shared by Bridge by Deloitte (a web platform connecting enterprises with startups to accelerate innovation and growth), i2c recently teamed up with Oxfam, Visa and Philippines-based UnionBank to channel funds to people in disaster-affected communities through prepaid cards.

With Money20/20 fast approaching, expect to see a lot of #payments trending on twitter. Trending in terms of financial investment: Adyen, a company receiving a lot of attention for wrapping up a huge round of funding that values the payment service provider at $2.3B. Adyen, which provides its services to a number of large organizations including Facebook and Netflix, excels in having a highly integrated platform, unlike others with multiple platforms.

When it comes to technology “powering the new wave of mortgage lending,” take a look at the work being done at BlendLabs. Developing software & data applications for mortgage lenders, the company acknowledges that “accommodating complex rules and regulation changes is time-consuming and costly.” For this reason, the company has quietly rolled out technology that empowers some of the country’s largest lenders to originate mortgages more efficiently and compliantly than ever before while offering their borrowers a more compelling user experience.

As the head of a company, I know first-hand how much time and effort is spent on efforts and ideas designed to maximize revenue and profits. So the promise and premise of nCino is hugely attractive. Co-founded by a fellow W&L grad (and the former CEO of S1) nCino is the leader in cloud banking. With banks like Enterprise in St. Louis (lead by a CEO that I have huge respect for) as customers, take a look at their Bank Operating System, a comprehensive, fully-integrated banking management system that was created by bankers for bankers that sits alongside a bank’s core operating system.

While not solely focused on the financial industry, Narrative Science is a leader in advanced natural language generation. Serving customers in a number of industries, including marketing services, education, financial services and government, their relationship with USAA and MasterCard caught my eye. As FinXTech’s Chief Visionary Officer recently shared with me, the Chicago-based enterprise software company created artificial intelligence that mines data for important information and transforms it into language for written reports.

In addition to these U.S.-based companies, you might look at how Fidor, a digital bank in Europe that offers all-electronic consumer banking services, links interest rates to Facebook likes and give cash rewards based on customers’ level of interaction with the bank (e.g. how many customer financial questions answered). Clearly, the fabric of the financial industry continues to evolve as new technology players emerge, institutions like Fidor expand their footprint and traditional participants transform their business models. So if you follow me on twitter (@aldominick), let me know of other fintech companies you’re impressed by these days.

September 29, 2015

Banking on Millennials?

I’m in Newport Beach, California where I just presented at Moss Adams’ 15th annual Community Banking conference. In tandem with Bank Director’s Publisher, Kelsey Weaver, we focused our remarks on the intersection of fintech companies with traditional banks — and how partnerships potentially position community banks to better serve millennials.

By Al Dominick // @aldominick

In our recent “talent-focused” digital issue of Bank Director magazine, we reminded readers that “as baby boomers retire and Generation X enters middle age, it’s not surprising that top executives and boards are turning an eye more aggressively toward seeding their banks for the future. But, when it comes to recruiting and retaining younger people, banks have a bit of a public relations problem.” This opinion formed the early foundation for today’s presentation — one that allowed Kelsey and me to share our thoughts on how and where bankers might invest in a generation consisting of 75 million Americans. Without re-creating our hour-long remarks, here are three of the points I hope stood out to attendees:

Loyalty < Price. In classic economic terms, banking is a mature industry (that is, an industry in which price carries the day over any other offering). Interestingly, many community banks tout their interests and ability to compete with larger institutions based on their customer service models. However, the expectations of consumers (be it individual or business) have changed to reflect an “always-on, always available” mindset that does not line up with how many community banks operate.

You’re not alone. I mentioned the San Francisco 49ers were recently featured in the Wall Street Journal — not for football purposes; rather, to show how the franchise has taken steps to better engage with their millennial employee base. As I shared, the team’s challenge to “relate to a generation — generally described as 18-to-34-year-olds — that has been raised on smartphones and instant information” parallels that of most banks in the U.S. I promised attendees I’d post the link to the piece I wrote that features the Journal’s report… Promise fulfilled.

There are Friendly Fintech looking for you. Competition comes in many shapes and forms and I believe that banks are acting too slowly when it comes to digital transformations and offerings. Yes, there are truly disruptive fintech companies that have zero interest in aligning with traditional financial institutions. However, there are quite a few that have built platforms that engage with consumers (both individual and business) that want to support banks as part of a mutually beneficial relationship. In our presentation, one of the key pieces is a look at who is friendly to banks in the fintech space (juxtaposed with those that are obviously competitive). If you’re interested, here is a link to the PDF version: Moss Adams 2015 presentation by Bank Director.

Separate from our presentation, let me encourage readers interested in building customer loyalty to check out the work of James Kane. He opened the conference yesterday morning by presenting “The Loyalty Switch: How to Make Anyone Loyal to You, Your Team, and Your Bank.” A smart speaker with an even smarter message. Finally, thanks to our friends at Moss Adams for inviting our participation and the audience of CEOs, CFOs, Controllers, Internal Auditors, and Audit Committee Members from banks here on the west coast. A privilege to share our perspectives with all of you this afternoon.

September 1, 2015

18 Banks that Fintech Companies Need to Know

To build on last week’s piece (15 Banks and Fintechs Doing it Right), I put myself in the shoes of an early stage fintech company’s Founder. Specifically, as someone with a new idea looking to develop meaningful financial relationships with regional and community banks in the United States. With many exciting and creative fintech companies beginning to collaborate with traditional institutions, what follows is a list of 18 banks — all between $1Bn and $25Bn in size — that I think should attract the tech world’s interest.

By Al Dominick // @aldominick

Believe it or not, but bank CEOs and their teams are working hard to grow revenue, deposits, brand, market size and market share. So a hypothetical situation to tee-up today’s column.

Imagine we developed a new, non-disruptive but potentially profit-enhancing software product (let’s put it in the “know-your-customer” sector since banks already spend money on this). As the Founders, we want to approach banks that might be ready to do more than simply pilot our product. While our first instinct would be to focus on recognizable names known for taking a technology-based, consumer-centric focus to banking, the low hanging fruit might be with CEOs and executive teams at publicly traded community banks — many of whom are above $1Bn in asset size and are just scratching the surface of developing meaningful fintech relationships.

With the idea that smaller banks can act faster to at least consider what we’re selling, we cull the field, knowing that as of June 1 of this year, the total number of FDIC-insured institutions equaled 6,404; within this universe, banks with assets greater than $1Bn totaled just 699.

So now we are focused on a manageable number of potential customers and can spend time getting smart on “who’s-doing-what” in this space. Can we agree that we want to approach banks that share common characteristics; namely, strong financial performance that sets them apart from their peers and operations in strong local markets or big economic states? Good, because assuming we are starting from scratch in this space, here are our top prospects (listed in no particular order with approximate asset size):

Citizens Business Bank in California ($7.3Bn)
Pinnacle Financial in Tennessee ($6Bn)
Farmers & Merchants in California ($5.5Bn)
Western Alliance in Arizona ($10Bn)
Eagle Bank in DC ($5.2Bn)
Prosperity in Texas ($21.5Bn)
BankUnited in Florida ($19.2Bn)
BofI “on the internet” ($5.2Bn)
First NBC in Louisiana ($3.7Bn)
Burke & Herbert in Virginia ($2.6Bn)
Banner in Washington ($4.7Bn)
Bank of Marin in California ($1.8Bn)
Cardinal Bank in Virginia ($3.4Bn)
State Bank in Georgia ($2.8Bn)
TCF Financial in Minnesota ($19.3Bn)
United Bank in Connecticut ($5.5Bn)
Boston Private in Massachusetts ($6.8Bn)
Opus Bank in California ($5.1Bn)

At a time when the concept of service is fast changing to reflect highly functional technology and “always-available” customer experiences, these eighteen banks — already successful in their own right — strike me as just the types to think about approaching.

*Now I’m not suggesting everyone pick up the phone and call each’s institutions CEO. But If you are with a fintech thinking about partnerships and collaboration, you could do a whole heckuva lot worse than spending some time learning what makes all of these banks more than just financially strong and consumer relevant.

August 25, 2015December 24, 2016

15 Banks and Fintechs Doing it Right

15 examples - new blog cover image.001

Many bank CEOs and their executive teams are looking for emerging methods, products and services to reach new customer segments to drive growth. Today, I identify fifteen banks in the United States, all under $20Bn in asset size, that are growing with the help of fintech companies.

By Al Dominick // @aldominick

With the rise of many innovative, non-traditional financial services companies, leaders of financial institutions can find themselves overwhelmed when it comes to selecting the right partners. If you are running a bank that doesn’t have multiple incubators, accelerators and skunk work projects already under way, knowing where to participate with the fintech community can prove quite the challenge. Should it be with an upstart touting a new credit decisioning models? What about one with a new lending model? In the quest to become more “nimble” and responsive to consumer demands, do you partner? Refer business? Accept referrals? The list of not-so-rhretorical questions goes on and on…

Now, quite a bit of digital ink has been spilled over the creativity and aspirations of the fintech community (and its many investors) to transform banking. But not nearly as much for banks looking to do the same. While the efforts of major players like Wells Fargo and Capital One garner well-deserved attention, it is my belief that for fintech companies keen to collaborate (and not compete) with banks, developing relationships with banks from $1Bn to $10Bn — there are approximately 550 — and those from $10Bn to $50Bn — there are approximately 75 — may prove as lucrative over the next few years as working with the 30 banks that have assets from $50Bn up.

With this parameter in mind, I polled a few of my team at Bank Director to compile a list of banks, all under $20Bn in asset size, that “play well” with fintechs to show that you don’t have to be the biggest of the big to benefit from this wave of new market participants. Here, in no particular order, are fifteen banks with notable relationships and/or efforts.

Eastern Bank checks in at $9.7B in asset size, and the Massachusetts-based bank stands out for bringing on some great fintech talent; notably, hiring ex-Perkstreet CEO Dan O’Malley and several of his colleagues to lead its innovation unit;
California’s Fremont Bank ($2.7B) caught our eye, as the bank was a fast adopter of Apple Pay;
River City Bank ($1.3B, Sacramento) has a fintech guy — Ryan Gilbert, Better Finance — on their board;
The Bancorp ($4.5B) backs a lot of fintech/nonbank firms like Moven and Simple;
Radius Bank (just under $1Bn) is a Boston institution with just two physical locations — but is forming alliances with fintech startups to be “everywhere;”
Union Bank & Trust in Nebraska works with Betterment, an automated investing service, to offer its customers a smart, simple and easy way to invest;
A real pioneer, CBW Bank ($14.5B) is a community bank in Kansas and one of the first U.S. banks to use the Ripple protocol for modern, real-time payments between the U.S. and other countries globally;
In the Pacific Northwest, Washington Trust ($4B) is vocal on being tech-friendly;
In Texas, First Financial ($6B) is big on mobile and being innovative — working with Mitek, they are the first regional bank to offer mobile photo bill pay);
Banc of California ($6B) uses nCino to automate and standardize its commercial and SBA lending;
PacWest ($16B) are all about lending to technology and fintech companies;
The Bank of the Internet, BofI, is a full-service internet bank with $5 billion in assets;
Everbank ($16B) plays well with Fintech while adorning the stadium of the NFL’s Jacksonville Jaguars;
Rockland Trust has a SVP of digital and payments innovation, which is unusual for a $5.6 billion dollar bank; and
The $17 billion-asset First National Bank of Omaha hosts a weekend-long hackathon, a competition common in the tech world but rarely hosted by banks, to attract talent into its ranks.

By no means is this a complete list of community banks collaborating with fintechs in the U.S. If I was to expand the list up in size, you can bet larger regional standouts like KeyBank would merit recognition for their work with companies like HelloWallet. In the spirit of learning/sharing, who else should be added to this list? Let me know via twitter or by leaving a comment below.

August 11, 2015

Pushing Forward: The Future of Financial Services?

Yesterday, the L.A. Times wrote about a bank that is “part lender, part consultant, part cheerleader and part investor… a nursemaid to countless start-ups — Airbnb, Fitbit, Pinterest and TrueCar, to name some recent ones — as well as banking the venture capitalists who fund them.” Curious to learn more about this California-based innovator with a great reputation for serving software, hardware, biotech and healthcare start-ups? Read on.

By Al Dominick // @aldominick

Bank Director’s managing editor, Naomi Snyder, recently wrote that “banks are used to identifying, monitoring and mitigating risks, more so than they are adept at innovating. But an argument gaining increasing weight is the notion that banks really are technology companies and need to think more like a technology company.” But what if, instead of transforming one’s business model to resemble a tech firm, an institution instead acted like Silicon Valley Bank, the Santa Clara-based powerhouse that has financed scores of the highest-flying tech companies like those mentioned above.

Certainly, this standout financial institution has a knack for staying close to their customers (*take a look at their Innovation Economy Outlook 2015). So at a time when many banks are shrinking in relevance despite their important role in local economies, I thought to take a look at this “unusual for an FDIC-regulated bank.” Billed as the bank of the world’s most innovative companies and their investors, the LA Times shared that with $40.2 billion in assets, Silicon Valley Bank now has “the heft to handle them from start-up to initial public offering, multiplying its profits on larger loans and fees.” Further,

The bank, which recently opened an office in Santa Monica, is more willing than others to focus on a start-up’s growth prospects rather than its current financial condition and to lend money so businesses can expand while awaiting the next round of venture capital funding, said investor Mark Suster, a client and managing partner at Upfront Ventures in Los Angeles.

Now, this doesn’t preclude the bank from identifying a good thing that can help it to continue to push forward the future of financial services. Case-in-point, I woke up a few days ago to find, via Twitter, that Standard Treasury team joined SVB Financial’s information technology team “to help it expand the bank’s digital banking platform.” Just as I looked at Capital One’s recent fintech acquisitions in my last post (How Capital One Can Inspire Your Digital Efforts), the fact that the bank hired the team from startup company Standard Treasury to help accelerate the development of its API (application programming interface) banking services underscores the institutions drive to “enable easier collaboration, product development and integration with… clients.”

While catching up to Silicon Valley Bank — which boasts of having half of all startups in the U.S. as clients — will challenge many traditional institutions, I think it makes far more sense to look at what they have accomplished and suggest banks in markets where venture-backed start-ups are taking off try to pattern their business after SVB’s successes rather than radically shifting the underlying business model to emulate what might work for a technology company.

Of course, the LA Times does remind us that “most also don’t come close to Silicon Valley Bank’s well-connected network of outside experts, mentors, tech executives, venture capitalists and current and former clients ready to help its upstart entrepreneurs — no matter how farfetched an idea might seem.” Nevertheless, at a time when individuals along with business owners have more choices than ever before in terms of where, when and how they bank, I think leadership teams at financial institutions of all sizes should pay attention to how Silicon Valley Bank aligns its services (and product mixes) to suit core customers’ interests and expectations.

August 7, 2015August 7, 2015

How Capital One Can Inspire Your Digital Efforts

While venture-backed fintech firms continue to garner attention for being “ahead of the times,” don’t sleep on the franchise being built by Capital One.

By Al Dominick // @aldominick

Should you look at the term “innovation” and disassociate it with the banking sector, you are forgiven. But innovative is exactly the description I favor for Capital One Financial Corp. (NYSE: COF), especially as I define the term as an ability to monetize creative ideas, products and processes. Indeed, the McLean, VA-based bank ranked first among the 20 publicly-traded banks with assets of more than $50 billion in Bank Director magazine’s annual Bank Performance Scorecard and is widely considered at the forefront of taking a technology-based, consumer-centric focus to banking.

As we see in their financial performance, Capital One managed to increase net income and benefited from the high profitability of a substantial credit card operation and the stable funding of a regional banking franchise. As you can read, the company rated highly on traditional profitability metrics: they posted a return on average assets (ROAA) of 1.53, a return on average equity (ROAE) of 10.33 and a Tangible Common Equity ratio of 9.82. So while various fintech companies make news for their valuations (*hello Stripe, which received major funding from Visa and other investors, valuing the startup at $5 billion) or loan volume (**hola Lending Club, which originated nearly $2 billion in loans during Q2), I’m paying attention to Capital One’s performance.

Nonetheless, their financial numbers don’t tell the whole story.

As our editor, Jack Milligan, writes in “How Young and Hungry Fintech Companies are Disrupting the Status Quo,” the digital financial services space “is exploding in activity as new technology companies push their way into markets and product lines that traditionally have been the banking industry’s turf.” To this point, many bank executives should take note of Capital One’s focus on technology and its business model. Its CEO, Richard Fairbank, is focused on leading the digital transformation of banking and is not shy in stating that “the winners in banking will have the capabilities of a world-class software company. Most of the leverage and most of our investment is in building the foundational underpinnings and talent model of a great digital company. To succeed in a digital world (you) can’t just bolt digital capabilities onto the side of an analog business.”

Cases in point, Capital One acquired money management app Level Money earlier this year to help consumers keep track of their spendable cash and savings. Prior to that, they acquired San Francisco-based design firm Adaptive Path “to further improve its user experience with digital.” Over the past three years, the company has also added e-commerce platform AmeriCommerce, digital marketing agency Pushpoint, spending tracker Bundle and mobile startup BankOns. Heck, just last summer, one of Google’s “Wildest Designers” left the tech giant to join the bank.

More and more banks are realizing that they have to fundamentally change to keep up with the industry’s digital transformation. But shifting an organizational structure — and culture — to become more focused on what customers want and expect in an increasingly digital age is no simple task. Not everyone can offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients like Capital One does. But all can certainly learn from the investments, partnerships and efforts being made by this standout institution.

In case you’re wondering…

Bank Director’s Bank Performance Scorecard uses five key metrics that measure profitability, capitalization and asset quality. ROAA and ROAE are used to gauge each bank’s profitability. KeyCorp (NYSE: KEY), of Cleveland, ranked second, and rated highest for capital adequacy, with a TCE ratio of 9.87. In third place, U.S. Bancorp (NYSE: USB), of Minneapolis, topped the profitability metrics with a 1.55 ROAA and 13.53 ROAE. Wells Fargo & Co. (NYSE: WFC) and Comerica Inc. (NYSE: CMA) rounded out the top five.

July 29, 2015July 29, 2015

Quick Guide: Banking’s Digital Transformation (#Payments)

Developing faster payments capabilities is a critical element within the banking industry’s digital transformation.

In yesterday’s post (The 5 Corners of Technological Innovation in Financial Services), I looked at the introduction of an Innovation Group at Wells Fargo that, in the words of their CEO, “puts an even larger focus on creating the products, services, and technologies” that will allow the institution to stay competitive and allow its customers to do their banking when, where, and how they would like.

As I dug into the Wells story — which received a lot of play from the press — It strikes me that to successfully transition one’s business model, innovation teams such as this one need to work in concert with major business groups like wholesale and commercial banking, commercial real estate, trust and wealth management, and payments / consumer banking. As I consider how banks actually operate — e.g. how work is done, the degree of automation, the pricing and design of products and underlying compensation systems — I revisited several videos from Bank Director’s annual FinTech Day @ NASDAQ. One, of Ben Plotkin, Vice Chairman of Stifel / Executive Vice President of Keefe, Bruyette & Woods, stands out, as he shares his perspective on how banks of all sizes can find success.

Ben touched on the payments space, and I too am curious to explore the role banks must play in the emerging payments ecosystem. Here, Accenture provides valuable context as the world becomes more digital: “speed in all aspects of financial services is increasingly important. The payments ecosystem is no exception. Faster payments are taking shape across the globe—and may become industry standard. While faster payments can enhance the customer experience and improve cash flows, it introduces a number of complexities, such as capital costs, and accounting and fraud systems impacts. In the short term, providing the impression of a near-real-time payment through memo posting and verifying the certainty of payment could be implemented sooner, and may meet expected market demand.”

Certainly, the trend toward digital money continues to gain momentum, and when it comes to the payment space, there are emerging technologies that have the potential to dominate the financial landscape (e.g. P2P & Blockchain methods). Case-in-point, Stripe, the California-based online payments company, has raised new investments which have raised the company valuation to $5 billion. Per a report in yesterday’s Let’s Talk Payments (h/t Brad Leimer @leimer), the funding “was led by financial giant Visa and experts believe this is a huge endorsement for Stripe. The company had previously raised a total funding of $190 million from high-profile investors including PayPal co-founders, Sequoia Capital, Box CEO Aaron Levie, Khosla Ventures, Andreessen Horowitz and others.” As The New York Times reported, the companies’ strategic alliance will give Stripe access to Visa’s global network of issuers and acquirers. BI Intelligence Payments Insider notes the companies will also collaborate to create online checkout solutions and buy buttons that can be plugged into developers’ websites anywhere.

How we pay, borrow and invest continues to change the way we conduct our financial payments. It is fascinating to watch as companies like Stripe, PayPal, Dwolla, etc hustle to simplify how businesses accept payments through mobile applications while banks like Wells Fargo invest to do the same.

July 28, 2015

The 5 Corners of Technological Innovation in Financial Services

To grasp what the future of banking holds, look no further than the five areas of focus for Wells Fargo. Last week, the best performing large bank in the United States launched an “Innovation Group” in San Francisco. As they share, this team will will work in partnership with its major businesses to meet evolving customer needs and stay ahead of the shifting competitive landscape. Initially, such efforts will center on five areas:

Research and development;
Innovation strategies;
Payment strategies;
Design and delivery; and
Analytics.

As a nationwide, diversified, community-based financial services company with $1.7 trillion in assets, Wells Fargo now has six innovation labs along with its startup “accelerator.” Given that a number of the world’s largest finance sector companies are reviewing their business models following the rapid growth of “fintech” entrants in the sector, the investment in both time and resources by Wells Fargo gives shape to the potential future of banking.

Wells Fargo Labs invite customers to “Come out and Play: Be one of the first to test out latest ideas and technologies – from still-in-development beta offerings to newly launched products.”

Personally, I’m drawn to this new addition to the Wells family in light of a report by the World Economic Forum, supported by Deloitte Consulting, entitled The Future of Financial Services:How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed.

As noted by the paper’s lead author, “for decades, banks and insurers have employed similar, highly profitable business models. But they realize those models are coming under pressure due to fintech innovations… Financial technology companies are deploying online platforms, have small capital bases, and make strategic use of data, to acquire customers and revenues at a fast pace. Banks and insurers noted that, and are contemplating their response.” So as major players like Wells Fargo explore the “transformative potential of new entrants and innovations on business models in financial services,” seeing the cards they are putting on the table provides real color for what the future holds for many here in the U.S.