By Kelsie Papenhausen and John San Filippo
This year, Fintech Meetup and the Governmental Affairs Conference fell on the same dates: March 3-6. This left credit union technologists having to choose between conferences. Many credit unions and technology providers elected to send representatives to both events.
Among the many sessions at Fintech Meetup was a panel discussion on “How to Build a Successful Bank-Fintech Partnership.” Despite the unfortunate name of the session, the panel included two familiar names in the credit union space: Plinqit’s Kathleen Craig and MSU Federal Credit Union’s Ben Maxim. The full panel consisted of:
Michele Alt, co-founder and Partner, Klaros Group (moderator)
Kathleen Craig, founder and CEO, Plinqit
Chris Dean, co-founder and CEO, Treasury Prime
Ben Maxim, Chief Digital Strategy and Innovation Officer, MSU Federal Credit Union
Carey Ransom, Managing Director, BankTech Ventures
What’s Important
Alt opened the session by asking Craig what financial institutions need most from fintechs. “Specialization is really important,” responded Craig, “not trying to be all things to all banks and all people. Knowing what you're actually solving for is key. The other thing I would say to fintechs is, you have to know the regulations that surround whatever you're working on. Don't come into a [financial institution] and expect them to solve that for you. You need to know the regs and the things that [the institutions] need to deal with in your specific area.”
“There has to be so much trust and oversight between the bank and the fintech,” added Dean. “Otherwise, it just won't work. There's been a wave of regulatory action recently, which is basically people getting slapped on the wrist, sometimes a little bit harder. You have to make sure that everyone on this chain from bank to fintech to end user is being served properly.”
“I'm sure everyone in this room has been following with interest the enforcement actions that Chris mentioned, noted Dean. “I don't think I’d describe any of them as a slap on the wrist. But the thing to really pay attention to from those enforcement actions is the importance of poor governance. Banks have to own compliance of the fintech and banks need to have strong regulatory controls at the outset of the due diligence of their [fintech] partners. If they don't, the FDIC in particular will take that role over.”
Ransom said that some fintechs act as if the fintech is hiring the financial institution. “The regulators have made it very clear that it is actually the other way around,” he said, “that the fintech is a service provider of the bank. Over the last decade, that has not been well-articulated and understood. Right now, the fintechs need to find banks that can help them understand that.”
The Credit Union Difference
Alt asked Maxim to describe the process at MSUFCU for evaluating new fintechs.
“We started our innovation lab focused on partnering with fintechs, figuring out a process that's repeatable – that we can test things and put them in front of our members and actually get some real feedback before going all in on these partnerships,” explained Maxim. “Oftentimes we’re the first client for many of our fintech partners coming out of accelerators or incubators that we're working with, as well. We're looking for solutions that allow for us to have a personalized experience.”
Maxim went on to say that not every fintech needs to address the needs of every member. “We're not looking at a fintech partnership to serve all 350,000 of our members,” he said. “Instead, we’re thinking, this fintechs can serve 20,000 members who really want to do this and [this fintech] can do it well. We can't invest the time, energy, and technology resources to build these things. So, we're looking for partnerships to really get into more the digital relationship building side of things.”
According to Maxim, credit unions have an advantage in that the NCUA is more supportive than perhaps other regulatory agencies.
“The NCUA created an Office of Financial Access and that's how they're putting all their fintech partners through,” he said. “They're looking at it as a way to increase financial services to America. They're looking at the fintechs to be able to help provide services to the under-banked and unbanked. NCUA board members go to a lot of the fintech events. They talk and meet with fintechs at these events. They hear the issues from both sides.”
“Contrast that to the federal banking agencies’ approaches to innovation,” added Alt. “You have both the Fed and the OCC, their innovation offices are now housed within their supervisory function. They consider bank and tech partnerships novel activities even though there's not a lot that's novel about, for example, a debit tech program. They’re interested in innovation from a supervisory perspective, not from a sandbox perspective.”
Alt went on to describe the FDIC as the “most egregious,” explaining that “the FDIC repurposed its innovation office to basically an in-house FDIC IT function. It's IT support. There is no innovation program there anymore. I will say personally, we have found the NCUA to be extremely receptive and the folks at the innovation offices, both the Fed and the OCC to really be interested in innovation.
Final Thoughts
Alt closed the session by asking each panelist to briefly provide their best advice on fintech partnerships.
“What it really boils down to is this: Be truthful, transparent with yourself,” said Maxim. “No matter what side of equation you're on, be honest about what you're creating, what you want to be. Be true to yourself. Also, be clear on expectations before you move forward.”
“Understand who you are or if you want to be different, who you want to be,” added Ransom. “Make the decision and then actually do something to move forward. You can come to a conference like this and take a bunch of notes and then go home and nothing happens. It's less about activity and more about progress.”
“It's better to try one thing this year than to try 10 and not get any of them across the line,” observed Craig. “Stop just hiring innovation officers that have no budget, no autonomy, no ability to say yes, and then sending them to conferences. Give them a budget, give them a risk budget, and try one thing this year that will move your organization in the right direction.”
“Banks want to work with the best,” noted Dean. “Fintechs want to work with the best, too. If you're a fintech and you’re not confident with a bank, you should move on. At the same time, if you're a bank and you like some of the stuff about the fintech, but it's really not a perfect match, you should also move on because these are long-term relationships.” that you have together and you're not willing to like put forth the effort to have relationship.
“It won't work if you're not a true partner,” concluded Alt.