FinovateSpring 2020 Takeover
Get in front of the FinovateSpring audience this May.
Last week would have been the week of FinovateSpring. However, instead of being in to San Francisco to gather in person, the majority of the world remains at home.
FinovateSpring has been rescheduled and re-named to FinovateWest for 2020 and will take place this coming November. To commemorate our original dates, we curated a week of analysis and insights for our blog readers offering updates and ideas about the future of fintech and conducting business during the coronavirus. All of the content is collated it into this e-magazine. It felt good to connect with leading industry players, pick their brains and hear how businesses are adapting.
We also gave a major sneak peek of the new digital demo format you can expect to see at our all-digital events this year.
Read on and enjoy!
Changing Fintech for a Changing World
COVID-19 will forever change the way that people engage with the financial institutions that manage their money. In an effort to figure out what exactly that change will look like, I conducted a series of podcast interviews with fintech experts, strategists, and analysts. While the entire series is worth listening to (you can find it here), conducting all of those interviews has given me a unique take on what to expect for the future of fintech. What follows are some of my own big-picture ideas and predictions for the ecosystem based on these conversations.
-Greg Palmer, VP, Finovate
For banks: a thinning of the herd
Let’s begin by pointing out what should be obvious to everyone at this point: the bank branch is dead. With massive amounts of the world’s population under some sort of stay-at-home order, for many people, there was no option but to take care of financial matters remotely through digital channels. Some governments are starting to ease restrictions which will make it possible for people to go back to branches again, but nobody expects that consumers will be as willing to come to a physical bank as they were just a few short months ago. It’s difficult to use an ATM without wondering whether the last person to use it washed their hands proficiently, let alone stand in a line surrounded by other people to wait to talk to a different person who will hand you some cash, which is likely covered in germs.
Digital, cashless banking has never looked so enticing, a theory which is validated by the massive upturn in digital banking adoption (or “hockey stick” growth as Dan Latimore described it). This upturn is terrific for the banks (and the fintech that supports them) that have already spent a lot of time and energy updating and optimizing
their digital experiences. That group tends to be made up of the larger, national (and multi-national) financial institutions, although it certainly contains some smaller, forward-thinking community banks as well.
Banks that hadn’t already prioritized digital transformation, though, are in serious trouble. Despite the writing that’s been on the wall for the past decade, many financial institutions never really engaged with tech to the degree that they should have. For those banks, COVID-19 marks the beginning of the end. It’s too late now to try to catch up, and we are about to see a dramatic thinning of the banking herd.
For fintechs: rising demand and growth, but higher stakes
On the fintech side of the industry, the picture is similar. Existing, successful fintechs are about to experience a period of unprecedented demand and growth. Just like with their banking counterparts, the initial hockey stick growth has proven to be a massive stress test, but for companies who passed that test, the future is looking rosy.
The flip side is harsher – fintech companies that hadn’t been able to get to scale, or who struggled to deal with the increased demand will likely fade into the background, pushed aside by the fintech “winners” who will come to dominate the space. Companies that had received venture capital funding before March will be under intense pressure to justify their positions in the fintech ecosystem, and if they can’t, they are likely to find further capital increasingly difficult to acquire.
The ideas that I’ve outlined so far aren’t controversial among the experts with whom I spoke. Most of them agree that the number of banks will start to shrink, the number of fintech companies will start to shrink, and both the bank and fintech sides will see smaller pools of winners grow into more dominant positions. But when it comes to the question of what happens to early-stage startups in fintech, the water starts to get muddier.
Fintechs’ future: a shifting startup ecosystem
A strong startup ecosystem is vital for the long-term success of fintech. New, young companies push incumbents, introduce exciting new ideas into the space, and recycle top talent. Without them, the industry will stagnate and settle into complacency. So what can we expect?
Despite the obvious pain points, there are a few key pieces that suggest we’ll see some strong innovation from early-stage companies. To start, with contractions on the banking side and the fintech side, there will be some strong talent available for people with new ideas. We saw something like this a decade ago in the wake of the Great Recession, where ex-bankers with inside knowledge of the industry (and its inefficiencies) were able to partner with technologists, and create some really interesting innovations.
Another key point is that while overall funding in fintech might slow, there remains a good amount of capital looking for a home. It will probably be more difficult to get the same initial funding amounts that startups were able to get in the past, but that’s ok. (You could easily argue that a lot of startups didn’t need all the capital they had been getting anyway, and smaller initial rounds make successful exits easier to visualize.) There is still capital out there, and the VCs and investment bankers that I’ve spoken with expect to see more of that capital going to early-stage companies than mid-stage companies who haven’t already made a move towards unicorn status.
That said, there will likely be more stringent vetting as a part of the funding process, and there’s going to be more pressure on early-stage companies to deliver results sooner. Even before COVID-19 began sweeping the world, some highly publicized failures like WeWork have had the VC community rethinking how high of a valuation startup companies can really claim. Startups should expect to have to do more with less initially, but as long as they can demonstrate success, they will get the funding they need to bring their innovations to market.
When you marry these factors together, a picture emerges of what the future in fintech looks like. There will be fewer bank and fintech players in the space, an emerging group of “winners” on the fintech side, and a tougher grading rubric for those seeking capital. It’s going to be a harsher world, but that may ultimately be a good thing for long-term success of the industry.
The rising tide lifting everyone in fintech for the past few years is gone. As the water comes back down, not everyone will survive, but those that do will be in a much stronger place. And as the herd thins, there will be space for new companies who can succeed in a more challenging reality.
A Journey to Purposeful Fin(tech)
2020 did not turn out the way we expected. With a tsunami of megadeals being announced in the first few weeks of the year, many predicted that it would yet be another banner year for fintech funding and M&A activities.
Then came the pandemic. And the economy came crashing down like Jenga blocks.
As COVID-19 has destabilized pretty much every aspect of our lives – companies big and small are preparing themselves for the long-term impact of the extended shutdown and economic downturn. With jobless claims hitting unprecedented levels, what do consumers need the most? How will financial services react and what roles do fintechs play?
Does the world need (yet) another metal credit card or another investing app? Do we really want to talk to our virtual assistant to figure out how much money we spent at Starbucks last month?
A new normal – and a different world
The U.S. unemployment rate hit 14.7 percent this month — a devastation not seen since the Great Depression. According to MarketWatch , “as many as 43 million new jobless claims have been filed since the pandemic began in mid-March, using unadjusted figures. That is one of every four people in the U.S. labor force.”
Goldman Sachs projected that the unemployment rate in the second quarter could hit 25%.
The health crisis has laid bare the structural inequalities that we face in the society, for those who are poor, non-white, women, and gig workers. According to the Washington Post , “20 percent of Hispanic adults and 16 percent of blacks report being laid off or furloughed since the outbreak began, compared with 11 percent of whites and 12 percent of workers of other races.”
Unsurprisingly, 70 percent of the people in line at a food bank had never been in a food line in their lives, according to Feeding America, the largest US hunger relief organization.
With so many who have yet to recover from the Great Recession, the added stress from the current downturn is unthinkable. How do we begin to think about recovery, when so many are in need? How do we build not only financial value, but also economic value? How do we, as an industry, put our focus back on the human experience? It is time to refocus on what matters.
Give cash – fast
First and foremost, we need to get money in the hands of those who need it the most. Propel, a New York-based fintech startup and maker of Fresh EBT app, widely used by millions of SNAP households, is doing exactly just that. In partnership with non-profit GiveDirectly, the team delivers $1000 direct cash to 100,000 low income families in dire need of assistance amid the COVID-19 pandemic. Meanwhile, Citizens Bank of Edmond, a community bank in Oklahoma, and Chime, a challenger bank, have both offered consumers early access to government relief.
Expand digital offerings
With more than half the world’s population in some form of lockdown, online and mobile banking adoption has increased dramatically for both incumbents and challengers. My favorite story is the one from PayPal, who
reported that people over 50 were the company’s fastest growing segment from March to April.
At a time when consumers are looking for safer and more convenient options to bank – this is the perfect opportunity to double-down and expand digital footprint.
- Be where your customers are. Engage with them via digital channels; augment capabilities of conversation interface and leverage online communities to share information and provide assistance.
- Create self-help or “how to” guides to walk users through different features of the digital offerings. And keep in mind accessibility needs – ensure that the design is inclusive of the demographics you are serving.
- Put yourself in your customers’ shoes. What information would they be looking for and what services would they need the most? Do they know what bills will be due – and if they would have sufficient funds to cover the expenses?
When deploying new digital solutions, design the experience around the end user – your customer – by having a deep understanding on what they want to be able to do with their money, not by what your legacy processes have dictated.
Improve long term financial security
While COVID has accelerated the move towards digital, financial institutions have the opportunity to become heroes in helping consumers tackle financial challenges and achieve long term financial well-being, beyond managing day-to-day transactions.
According to estimates by TransUnion, nearly 15 million credit card accounts and almost three million auto loans are in “financial hardship” programs. Using insights drawn from consumers’ financial activities, financial institutions can work with them to find best possible solutions to navigate the outstanding debt. Fintechs such as BillShark can also be employed to help bank consumers trim monthly subscriptions.
Now is the time to help consumers better understand their full financial picture, and offer guidance on next steps forward – beyond offering insights on past behavior. Take into account their life stage, not age – and the financial obligations they have.
Another untapped opportunity is financial caregiving for loved ones. With older adults being physically isolated at homes, adult children need ways to help their parents manage finances. But beyond paying bills, consumers can leverage fintech solutions such as those offered by Eversafe, which can analyze activities across financial institutions and help protect their assets from financial exploitation.
(You are) Always on my mind
It is as much the title of a song from Pet Shop Boys, as it is what firms should be telling their customers. As the saying goes: Actions speak louder than words. How companies treat their employees and their customers during moments of crisis speak volume – to their true values.
Now is the time for incumbents to partner with fintechs and offer the best-in-class solutions for consumers – as we slowly emerge from the crisis and navigate towards an uncertain future. We must turn our focus back at the core of what financial services is about: It is time for purposeful fintech – one that uses technology to do good – and serve the true needs of the society – beyond a shiny user interface.
Digital Demo Series
Your first sneak peek
As Finovate events return this fall, dozens of companies are getting ready to showcase their latest financial services technologies this September and November. And not surprisingly, many of these innovations are part of larger stories related to COVID-19.
As a sneak peek, we recorded two early digital demo interviews with WealthConductor and Momentifi who will also demo at FinovateWest. Along with Finovate VP of Strategy, Greg Palmer, WealthConductor explores the retirement income crisis, now more dire than ever when unemployment is at an all-time high, and Momentifi explores its CRM and sales system for remote workers. The company’s technology will continue to be pivotal as many regions still face stay-at-home orders and companies will not see offices at full capacity for many months.
Watch Wealth Conductor’s Digital Demo
Watch Momentifi's Digital Demo
Fintech Analysts Speak Out About COVID-19
What did the experts have to say?
We’re used to things changing fast in the fintech industry, but in the past few months, we’ve seen even more rapid change. That’s the reason behind the latest series on the Finovate podcast: Fintech in Extraordinary Times.
In this series, host Greg Palmer caught up with nine fintech analysts to get their thoughts on what we can expect to happen in fintech now that the economy and our way of life is turned upside down.
Check out the series to get a glimpse of who will be the winners and losers, what strategies will prove beneficial, and what the future of customer service will look like.
Shevlin summed up his projection in three words: “I don’t know.”
To be fair, he was the first guest in the series and didn’t have the benefit of seeing government stimulus packages, consumer purchasing changes, and infection curve adjustments. Shevlin explained that making guesses about the economy is the wrong move at the moment, and guided firms to instead focus their attention on strategic planning and helping to stabilize customers’ and employees’ lives.
“None of this advice matters,” he emphasized, “if the bank doesn’t first take a customer-centric approach.” Shevlin concluded that when we emerge from the other side of this crisis, banks will better understand the connection between financial health and physical health and will be better poised to deliver digital services.
During her discussion, Clarke focused on the positive. She made the point that the key to surviving recessions is preparing for the upturn. Banks need to balance cost-cutting efforts with productivity and should reengineer their processes around the customer and not the product. Instead of simply cutting costs by laying off employees, Clarke noted, banks need to consider how they can improve their productivity and focus on higher value tasks.
As for what’s next, Clarke believes that the next wave of innovation will center around risk and back office solutions that drive efficiencies. “We’ve already seen sexy front-end innovation and now there is a demand for efficient solutions to drive more scale,” said Clarke. In addition to back office solutions, she noted that the low-touch commerce movement will spur innovation in digital payments. And, she opined, we may even end up with a mobile payments solution that sticks.
Jegher stated that the crisis will prompt fintechs to be more creative, especially since consumer behavioral change has prompted a move into digital opportunities. The new era of the digital economy will ultimately be a test of a bank’s user experience. He explained that if consumers come running back to the bank branch when this is all over instead of learning to embrace mobile, perhaps there is room for improvement in the mobile experience.
In the future, Jegher predicts that changes to the economic environment and lower unemployment numbers will inspire banks to offer solutions that cater to the gig economy. Up to this point, traditional banks have failed to serve this customer segment.
Latimore kicked things off with a disclaimer that in the next few weeks as things progress and as new information comes in each day, his views may change radically. Overall, however, he predicts that COVID-19 will accelerate a lot of existing initiatives and consumer behavior patterns. For example, Latimore noted that we can expect to see hockey stick growth in consumers’ digital adoption and in their move away from cash usage.
On the other (perhaps more negative) side of the spectrum, Latimore said that we will likely see an acceleration of the “thinning of the fintech herd.” In other words, many fintechs will close their doors or become acquired by larger players.
In his segment, King opened by saying, “This isn’t a fintech bubble that has collapsed, this is the entire world economy that has collapsed.”
In predicting winners and losers, King anticipates that challenger banks will do well. And though a lack of future funding rounds may slow their growth, these non-traditional banks will be able to acquire new customers organically at a faster pace. He added that, conversely, fintechs working in the credit space may not fare as well. “If you’re in the credit business in fintech right now, that’s going to be tough– you’ve got to de-risk,” King said.
As for change that has already occurred in the industry as a result of the coronavirus, King looked to his own company, Moven, as an example. He explained that because the direct-to-consumer version of Moven lost a major round of funding due to concerns around the economic effects of COVID-19, the company had to make some major decisions. Ultimately, Moven closed its direct-to-consumer offering and pivoted to focus all of its efforts on Moven’s enterprise product, which is currently experiencing increased demand because of new digitization requirements.
Harris made that point the fintech has yet to experience a downturn, since much of it was born out of the last financial crisis. That said, many are watching the industry closely to see how it will weather the storm.
She highlighted the hope that fintech tools will help repress some of the negative effects of the economic downturn. Since we have a lot more tools and more data going into the current crisis than we had going into the 2008 financial crisis, perhaps the economic situation won’t be as bad as it would have been in the absence of fintech tools.
Harris predicts that as fintechs are impacted by the economic effects of the crisis, some will fold and others will fall short of meeting customer expectations. Because of this, she noted, we can expect to see more scrutiny from policymakers and regulators.
In her interview, Beaumont made the point that this is a time of forced change, and it’s causing innovators to step up to new challenges. Experian, for example, is offering its Affordability Passport to its customers for free.
As a champion of open banking, Beaumont highlighted that the need for open banking is even greater during this time of crisis. When it comes to lending, she said that leveraging business data using open banking is one of the keys to ensure that the right funding hits the right company at the right time. This will allow all banks to see a business’ entire financial history– even if that company does not do business with the bank that is extending the funding.
Skinner explained that large banks are having difficulty with the shifting demands of consumers. He noted that not only have they increased their digital demands, they are also requiring more one-on-one attention in areas such as mortgages. Because of these changes, many banks are receiving 10x their usual call volume but have 10x fewer employees to service the calls. After the pandemic, he concluded, many banks will rush to become purely digital.
Skinner predicts that the fintech industry has another decade until it will fully mature. He explained that once fintech reaches true maturity, it will be built on open banking. Even before this time, however, he anticipates we’ll see banks flock to the open banking model because after the pandemic, banks will be seeking agility. “The ones that are just sitting there like rabbits in the headlights are really going to struggle,” he said.
Customer Experience and Member Engagement in the New Era
Financial services organizations have significant and unique roles to play in the societal responding to COVID-19 – both as we are in the midst of the global pandemic and as we emerge and eventually start to rebuild and recover. In light of this unprecedented challenge, Senior Content Producer at Finovate, Laura Maxwell-Bernier, spoke with Norman Buchanan, First Vice President of Design & Transformation at Alliant Credit Union, to discuss the implications of these unprecedented times for the customer experience and member engagement.
Let’s start with how customer experiences are changing… what does a good customer experience look like in these unprecedented times?
Norman Buchanan: The definitions and fundamentals of member experience stay the same no matter what external forces are at work. Throughout our 85-year history, Alliant has been committed to serving and supporting our members in good times and in bad.
However, times like these do reinforce the human condition and highlight the importance of a human-centered member experience. Establishing authentic, empathetic connections in these times is even more appreciated and critical during the crisis.
So, how can financial services institutions offer support and reliability to customers when they need it most?
Buchanan: It is critical for financial institutions to show support to our members and customers in this crisis. At Alliant Credit Union, our lending, product management and marketing team quickly developed a new unsecured loan product offering for our existing members within the first week of the crisis. In addition to our unsecured loan product, we have also made our Payment Deferral, Modification and Payment Reduction programs more readily available and easily accessible. These offerings are critical to providing a small amount of relief and peace of mind to members who are experiencing a sudden and dramatic change to their financial condition.
We have been doing scenario planning for the last 10 years and some of the scenarios track closely to what we’re seeing in the market now. We’ve prepared for times like these and will continue to monitor the situation every day so we can make rate change decisions that are in the best collective interests of our more than 500,000 member-owners nationwide.
How is Alliant Credit Union responding from the customer and member perspective?
Buchanan: During this uncertain time, we are focused on four priorities: continuing strong service to our members, employee and member safety, helping members impacted by COVID-19 and keeping members and employees informed.
Alliant instituted an initial work from home policy on March 13 and implemented a 100% virtual call center within 3 business days to help support our members. We had never implemented this type of a call center before in Alliant’s history, (and honestly something I never thought we would ever see) but we were able to accomplish it in rapid time thanks to our resilience as an organization.
Our contact center NPS Scores for the first month of being 100 percent remote are 2 points higher than the same period last year. We mobilized a 100 percent work from home call center and have had slightly improved YOY satisfaction response from our members. This is something our credit union takes a great deal of pride in having accomplished.
With social distancing now the norm, how can we harness digital services to best serve customers and engage members?
Buchanan: Digital Transformation has been the lynchpin of Alliant’s strategy over the last five years. As our CEO, Dave Mooney puts it, “Banking is something you do, not a place you go.” This strategy has driven the transformation of our Mobile and Online Banking offerings based in research and continual feedback from our members as well as investment in our call center infrastructure and analytics. This strategy enabled Alliant to be in a position to close the majority of our branch network in 2018 so that we could focus on serving our members needs exclusively through our digital and phone channels.
In your opinion, what is the biggest challenge COVID-19 presents us in terms of delivering best-in-class customer and member experience?
Buchanan: The COVID-19 situation highlighted that a frictionless member experience needs to be supported by a frictionless employee experience, especially when that employee experience is 100 percent remote!
Areas of the operation that historically have been underinvested in automation have been highlighted by this historic experience. Operations like loan deferrals and modifications, which typically handle transaction volumes in the teens per week for us, have been overwhelmed by the current environment.
This allows us the opportunity to re-prioritize our focus to ensure that we can support our members with optimized and automated back office processes. That will be an immediate legacy of the COVID Member experience challenge.
How the Coronavirus Impacts the Appetite for Cryptocurrency
We’ve heard a lot about how the coronavirus has made an impact across the fintech realm, but what about in the crypto space? With an unstable stock market, why weren’t investors fleeing to alternative, blockchain-based assets?
To get an inside view on these questions and more, Finovate’s Adela Knox spoke with Max Lautenschläger, managing partner and co-founder of Iconic Holding, a Germany-based company that manages and sells crypto asset investment vehicles and invests in blockchain and crypto-focused companies via its in-house accelerator.
How has the coronavirus pandemic disrupted traditional investments?
Max Lautenschläger: Personally, as a supervisory member of the biggest independent financial advisory company in Germany, I am monitoring the German financial market closely. I was surprised how good the day-to-day business is going in this very special time, which is forecasted to be one of the biggest economical depressions in modern history. Moreover, it’s positively surprising how much this pandemic is pushing us towards a more digital financial ecosystem. Consumers are adapting to the “new normal” and are suddenly forced, but also willing to make decisions online. Investment advisors and financial consultants on the other hand are realizing the potential of using online tools for signing documents, online identifications or video calls for customer acquisition and retention. Financial institutions seem to finally understand how important digitization is for the daily operations with millennials, which have a very different expectation of financial services. Even though the whole financial industry is suffering, it will also have a positive impact long-term.
By looking at the best performing stocks since corona started, you can also see that more and more money is getting invested into themes like data, remote working, online education, and sustainability. In this pandemic people are realizing the shift the world has already made and want to be exposed to the increasingly important topics.
How has this impacted the appetite for digital currency?
Lautenschläger: It’s very important to understand what was going on when corona hit us out of the sudden. We’re not in an economic crisis yet, but the initial shock led to a so-called liquidity crisis, which makes investors liquidate their holdings -if possible- to cash. All asset classes suffered severely, even “safe havens” like gold decreased by more than 10 percent. Cryptoassets crashed in those extraordinary times, as well, even though they’re said to be non-correlating to other asset classes. Nonetheless, this crisis just confirms what we already know: central banks can print money and are increasing the circulating supply constantly. The beauty about crypto is that code is law, which means that the supply-demand-relationship is predefined. Over the last couple of weeks more and more institutional money has been invested into crypto assets which also led to a new peak in commitments to traditional financial vehicles like the Grayscale Bitcoin Trust.
Secondly, the discussion of introducing a blockchain-based Euro or US Dollar is again one of the top priorities for central banks all over the globe.Libra, despite its weaknesses, seems to be a solid backbone infrastructure for those digitized currencies and could help to accelerate this development.
What is the biggest myth about cryptocurrency?
Lautenschläger: Most people I talk to think that crypto assets don’t have any intrinsic value and research from big financial institutions are trying to support this hypothesis. But this is entirely wrong! Let’s take Bitcoin as an example. Digital gold, safe haven, store of value — a lot of phrases have been used to describe Bitcoin, and to a certain extent, I agree with all of them. For me, Bitcoin is a commodity like gold, other rare metals or rare earth, which can be modeled by the stock-to-flow ratio. On the other hand, there are blockchain protocols which are the infrastructure for decentralized applications. The value of those protocols and their native tokens is derived from the number of deployed applications and the level of engagement. Users will use the infrastructure that offers them the applications they need and developers will go where the users are.
How is cryptocurrency performing in the current pandemic climate?
Lautenschläger: First it crashed like all the other asset classes. The reason for this is that corona -at first- didn’t cause an economic crisis, but primarily a liquidity crisis. Studies in behavioral finance suggest that people tend to convert all liquid assets to cash to be prepared for an upcoming crisis. But even though crypto tanked even more than the stock and commodity markets it is still the best-performing asset class of 2020. With the monetary policy of the ECB, FED, and BoJ you can clearly see the vulnerability of our system, which makes more and more people lose trust in central bank policies and money in its current design. This is why crypto was born in 2009 as a reaction to the financial crisis.
What are the biggest benefits and reward of investing in digital cryptocurrency?
Lautenschläger: First of all, crypto has a low correlation to traditional and alternative asset classes, which makes it a perfect portfolio diversifier. Recently, we conducted a study in collaboration with the Frankfurt School of Finance and Management, which clearly shows that an allocation of 1% to 5% of crypto to a traditional portfolio not only generated additional returns, but also increased the sharpe-ratio severely, which is the most well-known risk-to-return measure.
Is the demand for crypto assets limited to professional investors or is it something for everyday investors?
Lautenschläger: Crypto assets were originally retail driven by individuals who believed in the idea of an intermediary-free world, in which everyone is financially included. Nowadays, we see more and more high net worth individuals and family offices investing into the space. The lack of professional, enterprise-grade financial vehicles is still an issue and makes it hard for institutions to enter the space. But recent developments like the European AML directive and the German crypto custody license are first indicators that crypto assets are becoming “bankable”. This is also what we have been working on for years at Iconic Funds: make crypto accessible through traditional, regulated vehicles.