Chris Tremont, executive vice president at Radius Bank (left) and Steve Le Roux, CEO of Envel speak at Boston FinTech Week 2018. Courtesy Photo | Caroline Klaar
Earlier this month, organizations and stakeholders from across the finance ecosystem came together for Boston Fintech Week, a volunteer-led, grassroots effort that put together 35 free events in Downtown Boston. The theme of this year’s event was “moving beyond volatility,” highlighting technologies that are moving markets forward.
As consumers continue to rely more heavily on their smartphones and devices, banks have been forced to think less about the branch and more on providing digital experiences. In fact, roughly two-thirds of Americans already manage their bank account using their computer or mobile phone, according to a survey conducted at the end of last year by Morning Consult for the American Bankers Association. Here are the key takeaways on banking and fintech from Boston Fintech Week.
How Will Consumers Live in the Future?
The single-family residential mortgage has been the bread and butter of banking for as long as the industry has existed. But will the standard mortgage live on forever? Maybe not, said Patrick Boyaggi, co-founder and CEO of RateGravity, a digital matchmaking mortgage fintech that aims to save borrowers tens of thousands of dollars on the life of their mortgage.
Boyaggi argues that the massive amount of student debt Millennials carry is detrimental to their chances of owning a home. While Fannie Mae has loosened lending standards incrementally, it is still not enough to conquer increasing home values, especially in markets in which most Millennials want to live.
“We need to think less about financing and more about the way consumers will live in future,” he said. “Does a Millennial need to own a single-family residence on their own or can they share with someone? Can you have multiple properties and not have any one as primary residence?”
Banks and Fintechs Coexist
Over the last five or six years, the national, online-focused Radius Bank has made five or six deals with different fintechs to support its almost entirely digital banking model. This was unheard of at the time.
“I remember at the time people said, ‘what are you doing?’” said Chris Tremont, executive vice president at Radius Bank. “Fast forward to where we are today, there will be no fist fight between banks and fintech. They will coexist and move the ball forward. Some of the complacency that has built up over time … has driven fintech companies to exist.”
Tremont also said that working with fintech has enabled the banking industry to attract talent from other industries, as banking is now perceived as more innovative. Many panelists agreed that the future will only lead to more consolidation between banking and fintech, or more partnerships.
“We are always going to have conflicts. Banks have a lot of capital, but fintechs can move with agility that the larger banks can’t,” said Steve Le Roux, CEO of Envel, an artificial intelligence-powered bank. “We need to work together. With all this technology, we have more problems than ever, but we [also] have the key to solving these problems.”
Bram Berkowitz
Changing from Punitive to Positive
Banks can learn a thing or two from modern day tech startups when it comes to how they build their products.
“We build products that charge you when you overdraw an account or go to an ATM to get cash,” said Donald Westermann, CIO at Eastern Bank. “The punitive nature of those products is what drives misgivings about doing business with financial institutions. How do you build compelling products that are mutually beneficial?”
Le Roux agreed with Westermann, saying consumerism has changed the ways organizations deliver services, with a focus on long-term value.
“Banks are competing with time. People have less time to focus on the things they should be doing, and the industry is not reacting quickly enough,” he said. “If I can do a job for you without you having to do a thing and I can do it for free, this is a compelling business.”
Leveraging Data
Data is the future and while it certainly has the potential to hurt the banking industry – as can be seen in the case of Equifax and other breaches – data can also greatly bolster the industry.
“We sit on incredibly rich data – all the transactions in [bank] accounts,” said Westermann, adding that banks already use this data to predict insurance and fraud. “Financial institutions are really reluctant to monetize that. It comes down to the relationship with consumer.”
While monetizing this data can be viewed as an overreach, Westermann said it can also be used for mutually beneficial purposes such as products that allow banks to prequalify loans based on transactions, which could lead to lower interest rates.
Natalie Hunt, director of digital alliances and technology integration at Fannie Mae, said the agency is considering if it could use data at financial institutions to make it easier to underwrite mortgages for consumers.
Currently, consumers provide financial documents like their bank statements for mortgage approvals. But what if Fannie could get approval from the borrower to go directly to the bank to get this information? It would be beneficial, but it can’t happen if consumers aren’t on board.
