In fintech’s early moments much of the talk was how these new tech upstarts were going to eliminate the big banks. Emboldened by spending their formative years in the midst of recession, many entrepreneurs (and rightly so) worked to create trust in finance by providing products and services from outside the system to meet the needs of those disaffected by it.
You don’t hear so much talk about the banks going away any more. In some corners you never did.
There definitely isn’t such talk at Fundation, CEO Sam Graziano said. A direct lender, Fundation commits their own capital to finance institutions’ small business loans. They hold them on their balance sheet and manage the loan servicing.
“We made a conscious decision a couple of years ago that we were going to build an enterprise that is an integrated part of the banking system,” Mr. Graziano said. “At the time the talk was technology was going to replace the banking system. You don’t hear that now.”
Many institutions find small business lending problematic as they seek to balance cost efficiency and reward. If you spend the same to underwrite both a $50,000 loan and a $250,000 loan, and there is enough business in the latter range, why swim with the small fish?
Advancements in technology make it worthwhile to work with those seeking small sums, Mr. Graziano said.
“Fundation helps banks engineer the small business lending process. We assist our partners with leveraging technology to improve service or expand their products and services.”
The recipe is a successful one. Fundation has grown over the past 18 months as they’ve cemented integrated lending partnerships with Regions Bank in the fall of 2015 and Citizens Bank last December. Expect more such announcements in the future.
Bank executives have of course noticed developments in fintech but, especially at the largest institutions, change is easier said than done, Mr. Graziano said. But they do have choices as they look to capitalize on the technology. Some develop their own capabilities while others acquire companies that have developed the technology they need. A third option is to outsource their technology needs by working with providers to develop white label solutions that work for their environment.
Before jumping in there a many factors to consider, Mr. Graziano said. First, decide how important this investment is to your business, because you are about to embark on a complex, and potentially expensive, decision-making process.
Are your expectations reasonable? Is their a justifiable ROI?
Mobile banking is growing in popularity and will serve some needs, but Mr. Graziano said he has yet to hear from one mobile banking provider who is delivering everything customers want to do via mobile. He sees customers mostly wanting to conduct more routine transactions through their mobile devices.
“For the more emotional decisions like borrowing and wealth management people want to talk to someone,” Mr. Graziano said.
But not all aspects of wealth management, Mr. Graziano explained. He sees advisors losing huge fees through systematic robo advisory services as customers move to lower cost investment vehicles such as ETFs. Some aspects of mortgages, insurance and deposit accounts are other areas that can be automated.
“I also think biometrics are one of those trends where you are going to see a lot of change happen,” Mr. Graziano continued. “People have to remember hundreds of passwords. Biometrics create a more convenient way for consumers to access their accounts while minimizing friction.
“It’s a true win-win.”