March 23, 2023
The inaugural in-person Fintech Meetup conference took place this week (March 19 – 22) in Las Vegas and is positioned to be a key event in financial services, banking, and Fintech. The gathering brought thought-provoking discussions and a slew of impactful 1:1 meetings for attendees. Despite market volatility, there was still an air of excitement over opportunities and resilience that can be created in times of industry stress.
Here are some takeaways related to Fintech Meetup from this week:
- There is a flight to safety, given market volatility and fragility. Newer Fintech providers need to look inward, focus on themselves, and continue to innovate. Larger Fintechs need to figure out how to leverage their scale to position to grow. All need to refocus and figure out who they are and what they are good at so they can focus on these core strengths.
- Open banking is exciting but there is uncertainty as to its governance. There is an increased willingness of customers to share their data, but the industry needs to deliver security, real-time functionality, and trust. Ground rules are needed over furnishers, ownership of data, transparency, and use of data.
- Sponsor bank and Fintech partnerships drive innovation and are growing — as is regulatory scrutiny over these relationships. Fintechs excel at customer acquisition and product innovation. Sponsor banks excel at operations and regulatory compliance. BaaS providers allow players to enter quickly but add complexity. As the industry continues to evolve:
- Executive leadership commitment is essential.
- Partners need to formalize relationships the correct way up-front, with robust due diligence, ongoing relationship management, and a compliance management program to govern the relationship.
- Sponsor banks need to view Fintech partners as customers of the bank.
- Fintechs should have a deep understanding of compliance requirements (KYC/AML, customer protections) expected by regulators.
- Partners need to evaluate their product roadmap and assess whether the potential partner can scale and align.
- Collaboration is critical for ongoing success and day-to-day operations.
- SMB lending is the next frontier for innovation and inclusion. For consumer lending, alternative data outside of traditional credit bureaus has been instrumental in helping some lenders better understand risk, extend credit, and improve the fairness of credit decisions – but more work needs to be done in the industry. Traditional data sources for SMB lending have been limited and out of date – but today lenders are able to tap into accounting, banking, commerce, and payments software through APIs. This allows for a streamlined and richer view of the business beyond traditional credit bureau data and increases access to credit for traditionally underserved business owners.
- Globalization and digitization create opportunities for Fintechs to innovate and enable all form factors and in real-time. Legacy payment systems do not effectively address these needs and as a result, the software market is very fragmented with many Fintech players. Orchestration enables choice but creates complexity and risk when there are issues with a payment. Accuracy and reliability are critical — if you lose your customer, they are not coming back.
- Significant opportunities exist to modernize B2B payments, but the transformation will continue to dramatically lag behind consumer payments. B2B payment digitization lags consumer payments given legacy processes and systems and the complexity of B2B payment flows (multiple suppliers, multiple currencies, approval processes, etc.). Automating AP/AR is compelling. Real-time payments could become ubiquitous with the roll-out of FedNow. However, B2B payment modernization requires significant effort and requires change across the entire workflow beyond the payment itself. Providers support industry adoption by making it easier for small businesses to integrate. For enterprises, providers crystalize the benefits, drive simplicity, and create a path with discrete milestones. There will always be multiple methods of payment that need to co-exist; it is not the rail, but the user experience.