They say the only certain things in life are death and taxes. If you want success in the FinTech world, that list changes to necessity of liquidity, strong relationships, navigating regulatory burdens, and establishing and maintaining consumer trust.
RateHub and the DMZ at Ryerson partnered up to host Canada 150: The Future of FinTech, and address these four issues.
The panel featured Jordan Wimmer, co-founder of Thrive Savings; Jamie Alexander, co-founder and CTO of Sensibill; Andre Salvi, managing director of BMO Partners; Alyssa Furtado, co-founder and CEO of RateHub; and Karney Li, VP of Engineering at Wealthsimple.
The room was curious as these people – all from very different walks of the “FinTech” life – came together to talk about how the financial services world is changing. There was much agreement on the panel, namely a bigger push for collaboration over ‘disruption’ and an honest conversation about what startups really need in order to entice big banks to partner with them.
“You need capital to survive a long sales cycle,” Alexander said in response to a question on the funding landscape in the FinTech world. “So you leverage as many government programs as possible, but you simply can’t live through two-year sales cycles without additional funding from VCs.”
This comment was in interesting contrast to Furtado, who said that RateHub has taken no major VC funding but used government programs to raise nearly $1M in cash and rebates through programs like IRAP or SR&ED.
There’s interests aligned between FinTechs, big banks, and regulators.
“We wanted to develop relationships with big banks from the start, but it was hard because the sales cycles were too long. We got involved with the [mortgage broker] community because we could call up smaller brokers and get a deal signed that day,” she says.
“Because of the necessity of needing to be profitable, we were forced to focus in on one vertical where we could make money,” Furtado continues. “Once we had profit, we could expand into other verticals like credit cards and savings accounts. Now, we are having conversations with big banks and working with some.”
Throwing another experience into the mix, Wimmer told the audience her story of founding Thrive, which is set to launch in the next few months.
“I was solving a pain for family and friends – no one had a savings plan,” Wimmer said. “Then I interviewed 500 potential users on their financial aspirations, goals, and to see what’s working. Once I had that data, we were able to chat with some of the banks up front to see how we could work together.”
When it comes to partnering with startups, Salvi does not mince words. As the managing director of BMO Partners, it’s his job to lead a cross functional, enterprise-wide team to leverage technology to generate new experiences for customers.
“Keeping data secure, in order to build trust with our customers, is our number one priority,” he said. “With that in mind, we look for best-of-breed partners that have longevity. We look for product, vision, liquidity, bench strength, management philosophy, and transparency in the process to see who we want to work with.”
The startups in the room agreed with this, but pushed back a bit to talk about some of the things they want to see from banks – namely, cross-functional teams and a revised contracting process.
“Where big banks have to adapt is in contracting,” said Alexander. “The big master service agreements (MSAs) that lawyers go through is expected for a large vendor – but it is difficult to take a startup through the same path. There are some areas, like confidentiality, that cannot be compromised. However, there are other areas to change for startups.”
“Teams at banks also have to be more cross-functional,” added Wimmer, talking about how many banks are business-line focused, whereas some FinTech companies require talking to multiple stakeholders at once. “For the bank deal we just closed, our internal champion put together a cross functional team from six business lines, then gave them the autonomy to make strategic decisions so we could work with them.”
Navigating regulatory burdens
If the banks and startups couldn’t quite agree on what was necessary to work with one another – a bank talking about longevity and a startup talking about ease of contracting – they could all agree on one thing: regulations need to be revisited.
Wimmer levelled with the audience, noting that regulations are expensive and confusing. At Thrive, they’ve focused on building an “A+ team of compliance and regulatory experts” to help them navigate, and in time, influence and shift, regulations.
Li agreed with Wimmer, but says Wealthsimple has a different approach to regulatory compliance. Instead of looking to achieve the specific wording of the regulation, they actively work with regulators to identify the intent of the regulation. If they are able to accomplish the intent, then they can show the regulators they are compliant, even if they didn’t follow every letter ‘to a t.’
“If you look into the market, there’s interests aligned between FinTech companies, big banks, and regulators,” says Salvi. “Both FinTech companies and big banks need to be able to test new models of service at a small scale without the regulatory burden, but regulators are figuring it out just the same as we [banks and FinTech firms] are.”
Establishing and maintaining consumer trust
The importance of regulation is to protect customers, but brand value also goes a long way to building consumer trust.
“My mother is afraid to use her credit card at the pay-at-the-pump gas stations,” joked Furtado. “I don’t think she’d be comfortable using a robo-advisor for her banking.”
“We have to take more ownership over our financial future.”
– Alyssa Furtado
The audience resonated with this, but then Alexander shared a story about the UK, a new market for Sensibill. He noted that many people don’t trust FinTech brands alone, Sensibill’s brand included. However, when you put a big bank name on the product or service that people trust, he says that consumers are more willing to use it, showing that it’s less about the technology and more about the trust factor.
This has profound implications for the FinTech world, which might be a reason behind FinTech’s shift from disruption to collaboration. Customer experience might help you win at customer retention and long-term brand building, but even the most innovative FinTech company might be reliant, in the early days, on the consumer trust and scale that comes with a big bank.
The future of FinTech
Far from being too much of a love-fest, the panelists had interesting visions for the future of FinTech in the next five to 10 years.
“We are moving from the internet of things to the ‘internet of me,’” says Wimmer, talking about her view that tech products will become hyper-personalized.
Salvi and Furtado agreed, noting that tech will generate new user capabilities and lead to more educated users, respectively.
“We have to take more ownership over our financial future,” explained Furtado. “As companies respond, this means more transparency and accessibility – making banking exist primarily on our computers.”
Far from becoming an AI-filled, human-less void of technology, however, the FinTech space will always have and need people, says Furtado.
“We have to embrace new technology, but understand its limitations and have an exit strategy. As capabilities increase, we can empower high-knowledge individuals to focus on advice, with technology removing barriers, obstacles, and friction.”