Symposium Insights

October 2024

Banking and fintech executives tackled this age-old (decades-old) question at the 2024 Payments and Banking Symposium.

The candid conversation delved into partnerships and acquisitions, leveraging each other's strengths, regulatory standards, data, financial inclusion, IT systems, industry culture, and much more – all in the course of just an hour.

Some snippets:

“Lending is not the most attractive way for banks to make money; it’s deposits. And that’s where trust comes in. Trust is probably the area that is most difficult for a fintech. I'm not sure software in and of itself inspires the kind of trust needed for deposits.”

“Loans may not be the most attractive place to be, but they might be the beginning of a relationship that leads to trust. And I think you can build trust through software, especially if it moves from task-based to helping a business owner run their day-to-day operation. It’s got to be sticky and value-additive.”

“We have huge amounts of data, but it’s coming from many, many different systems. And you have to reconcile that and figure out what is the singular source of truth.”

“Culturally, how do you go from an organization that celebrates staying within a defined credit box and weathers storms in that way, to opening up the aperture for taking on more risk?”

“Most fintechs started with a tech-forward blank sheet of paper to build something that scales, that's easy to integrate and embed into a lot of different flavors and platforms. Banks, on the other hand, have a lot of technology debt that inherently slows down agility and innovation.”

“We're using very traditional ways of underwriting loans, which are risk management oriented and often exclude small businesses. There are many (businesses) that might not have a FICO score and might not seem credit worthy. But they might pay their bills on time, have a great history of purchasing, and understand their cash flow. The question is how can we stay within our credit box, but use different parameters for credit worthiness?”

“Our credit model looks for exactly those businesses. We’re lending against a single cash flow stream – revenue – which creates a better risk position. Because we don't need all the other data that a normal credit veteran's gonna want, we’ve narrowed the problem. And then we’re using modern technology to solve that problem at the point of need, where the customer is coming into the software every day.”

“The costs of running a bank, from a regulatory standpoint, are going up. There are about 25% fewer banks now than four years ago. Customer deposits are moving upstream. If the number of community banks stays flat, they may not have enough capital to lend and support these small, local businesses.”

“Small businesses are, as they say, the lifeblood of the economy. If we want small businesses to prosper, it's imperative to figure out how to lend to small businesses. Because if you can't lend to them, can't help them with cash flow, can't help them weather the storm, they go out of business.”

“There’s a tremendous opportunity for banks to figure out how and where to segment and where to service. And that's where there's more opportunities for bank-fintech collaborations, because we know that small businesses run their business with software.”

“I think we're entering an era of a lot of bank-fintech partnerships, because capital is at a premium right now and we don't know what upcoming capital regulations are going to entail. There's a huge opportunity for a lot of partnerships that potentially turn into acquisition deals later on.”

“The future of lending is having access to data that enables you to make very personalized, predictive, relevant decisioning for small businesses.”

Thanks to these panel members:
David Sabow, Head of Technology and Healthcare, HSBC Innovation Bank
Rachel Castro, SVP of Business Banking Go-to-Market and Strategy, U.S. Bank
Luke Voiles, CEO, Pipe
Tom Priore, CEO, Priority