Actionable Strategies for Fintech

Questions, answers, strategies for the next phase of “fintegration”

Lee Wetherington Director of Strategic Insight Some stats… • PayPal makes $1B in working capital loans every quarter—70% where banks have shut down branches. • Square Capital made $5.5B in loans to 275K sellers over the past 5 years. oSquare Cash debit card used by 3.5M people • Stripe Capital and Uber Money launched EOY 2019 • Google’s going to offer checking accounts via Citi and Stanford FCU and they’re angling for your core data.

Have fintechs reached mainstream with consumers? Not yet. Digital lending is driving more “fintegration”… • Digital lenders doubled market share in last 4 years! • HSBC partners with Amount on digital lending platform • Kabbage and Upstart license their digital lending software to banks • Blend, Figure and Amount all want to enable better digital lending for consumers • What happens when lending is de-coupled from deposits?

7 Fintechs are closing the trust gap…

How are fintechs creating trust? Fintechs are innovating trust with…

• Conscious spending systems (sub-accounts) o Monzo’s Salary Sorter and Bill Potts • Automatic savings tools o Acorns; Debitize; Digit; Qapital; Stash • Actionable alerts that create loyalty o “Did you get double-charged?” o ”Did you intend to leave a 200% tip?” • Point-of-Sale financing (POSF) o Affirm; GreenSky; Vyze …fintechs widen the innovation gap.

Importance of fintech partnerships/collaborations/investments in 2019?

Source: Cornerstone Advisors survey of 300 community-based financial institution executives, Q4 2019 Bank’s plans for fintech partnerships in 2020

Source: Cornerstone Advisors survey of 300 community-based financial institution executives, Q4 2019 Bank’s fintech objectives for 2020

Source: Cbinsights’ Global Fintech Report Q3 2019 $$$

$$ deposits

BB X Mil Z Neobanks raised record funding in 2019

25 But is the neobank business model viable?

-£80m -£47.2m -£10.6m

‘Screw profits’

26 27 Are neobanks a threat, really?

Neobanks (aka “challenger banks”, aka “direct banks”, aka “digital banks”) launched 10 years ago in the U.S.

Q: What percentage of Millennials have a primary % checking account with a neobank? 3Millenials with primary checking at a neobank

Neobanks (aka challenger banks, aka direct banks, aka digital banks) launched 10 years ago in the U.S.

Q: What percentage of U.S. deposits are held by 0.014% the top 7 neobanks in the U.S.? % of U.S. deposits held by top 7 neobanks

SOURCE: Angela Strange; Andreessen Horowitz Infrastructure-as-a-Service reduced complexity and cost

SOURCE: Angela Strange; Andreessen Horowitz “The expansion of as-a-Service (aaS) infrastructure in financial services will lower the barrier to innovation and unleash massive experimentation, changing financial services dramatically for the better.” Angela Strange Andreessen-Horowitz Keep an eye on as-a-Service fintech platforms

SOURCE: Angela Strange; Andreessen Horowitz (in the United States)

SOURCE: www.crunchbase.com (in the world)

SOURCE: www.statista.com Source: Cbinsights’ Global Fintech Report Q3 2019 80-90% of fintechs fail So, you must vet them… Do this due diligence X 12,211 fintechs… No single bank has the time, expertise or resources to vet fintechs thoroughly

• Venture Center Mutual NDA • Tech Stack & Architecture Diagram (detail needed, including: security, • Investor Pitch Deck language, cloud etc.)

• Pro-Forma and Company Financials • Sales Pipeline (closed, signed, implemented, rev received, etc.)

• Fully-diluted Cap Table • Product Roadmap

• Resumes of Founders, Key Leaders/Employees, Advisors, Board Members etc. • Governance Documents • List of Board Members • Any signed MOU, LOU, Licenses • Business Plan or Lean Canvas • Copy of Any Insurance Policies • Marketing / Go-to-Market Plan • Articles of Incorporation • Investment Documents • By Laws • Equity Agreements (between founders and current investors) • Liability Insurance Coverage • Debt Agreements • Statement of outstanding Legal Proceedings • SAFEs/Convertible Debt Instruments • • Copies of the file wrappers of each Provisional Application, Utility Patent Statement of Current Relationships (with FIs, Partners, Core Providers)

• Application, Design Patent Application, and each issued patent • Customer References

SOURCE: Scott Mills with the William Mills Agency The fintech 5: questions and answers

1. Do you have a digital strategy? o You are levering fintech tactically to serve a larger business strategy. 2. How will you evaluate/vet fintechs? o Platforms, accelerators, incubators, industry resources 3. How will you integrate fintechs? o Are you fintech-ready? Have a 100% API-enabled digital platform or core? 4. How will you operationalize a fintech partnership? o Integrated back-end administration? Security, risk, biz models, talent/training? 5. Should your bank be/become a platform? o Enable Banking-as-a-Service for startups and fintechs? Seriously, who can help vet the fintech universe?

• Accelerators o Accelerators support early-stage, growth-driven companies through education, mentorship and financing. Startups typically enter accelerators for a fixed period of time (e.g., 12 weeks) and as part of a cohort of companies. • Incubators o Incubators assist technology-oriented entrepreneurs in the start-up and early development stage of their firms by providing workspace, shared facilities and a range of business support services. They seek to create a community and ecosystem to support the development of these companies over 1-3 years. • Platform service providers o Digital platforms that connect vetted fintechs. (magnet, matchmaker, toolkit) Seriously, who can help vet the fintech universe?

• Accelerators o ICBA’s ThinkTech o CFSI’s Financial Solutions Lab o NBKC Bank’s Fountain City Fintech • Incubators o Georgia’s ATDC o Boston’s Fintech Sandbox • Platform service providers o 100% API-enabled digital banking platforms, core providers and specialty PSPs Are you fintech-ready?

1. Are you keeping your data, all of it, forever?

2. Are you API-enabled, 100%, front end and back end?

o Does your digital platform “eat its own dog food”?

3. Do your integrations improve or diminish UX? (SSOs suck, SDKs can be clunky, APIs best)

4. Does your tech stack attract or repel developers/partners?

5. Does your tech stack lower or raise the barrier to innovation?

6. Would you surrender your data and digital UI/UX to a BigTech?

Attach context

Less typing, more helping Dragging and dropping accounts and transactions provides clarity in less time.

personal moment-of-need Moment of Need Resolution

Acknowledgement Moment of Need Resolution

Acknowledgement Conversational marketing Send content backed by an ad engine to customers–in a digital service channel that is conversational. Sales in the context of service Community banks have always been able to sell in the context of in- person service, so translating in- person service inside digital channels is key to transforming digital banking into a revenue channel instead of a cost channel.. Return on “personalization”

• For every $1B in assets, a bank can achieve $3M in revenue growth thru personalization (Boston Consulting Group) • The real question is which customer insights to surface and share, i.e., which insights matter, which are meaningful, which build trust? oSubscriptions that should be ending? oHave you been double-charged? • AI can automate cash-flow well and reliably

52 Actionable strategies for fintech

• Join/advise/invest in a fintech accelerator or incubator. • Partner with, connect to, or outright acquire a vetted, proven, strategically-differentiating fintech of choice. • Ensure your digital platform is open and fintech-ready o 100% API-enabled on front and back ends o Your digital platform should “eat its own dog food” o Keep all data, forever, in secure but accessible storage • API-enabled backend facilitates integration/consolidation of administration of new fintech solutions/features into single support console • Ensure your digital platform’s tech stack is attractive to developers o Is your digital platforms’ APIs are beautifully and comprehensively documented? Lee Wetherington

[email protected] http://discover.jackhenry.com/lee-wetherington

http://www.linkedin.com/in/leewetherington @leewetherington