(California News Times) - For years, technology has been cited as the greatest driver of integration in the American banking industry. As the market digitized, smaller community banks needed to work together to become more competitive with megabanks such as JP Morgan, which boasts a $ 12 billion technology budget.
But almost two years after the pandemic, when the industry began adopting digital technology at a record pace, integration slowed. Between 2016 and 2019, the total number of US FDIC insurance banks declined at least 4% each year. However, that number has fallen to 3.4% in 2020, and the number of banks guaranteed by the FDIC has fallen by only 1% so far this year.
In fact, small US banks have proven to be particularly agile during pandemics with the help of FinTech.Platforms such as Synctera It has played a key role in connecting community banks and credit unions to fintech companies that specialize in small banks meeting the new digital expectations of their customers.
Other platforms, such as banking software provider Q2, help financial institutions outsource development.
Roger Amador, vice president of enterprise business development at Q2, said his phone had been hung up for the past 18 months.
“We have many customers, both banks and co-operatives .. .. To get into the market faster and innovate faster so that we can compete more effectively in the local market. I’m looking for help, “he told Fintech FT.
Q2 recently partnered with Plaid, a larger fintech business, to provide a network of 500 banks and credit unions with easier access to thousands of fintech apps, including third-party budget tools. bottom.
The benefits flow in both directions. The new sense of urgency for community banks to step up technology is benefiting fintech service provider businesses.
“Small financial institutions are still reinventing their internal platforms and organizing around this new world,” said Ginger Baker, Head of Financial Access at Plaid. “This area is a real growth opportunity for us, mainly because this population is generally not well supported.”
While technology partnerships have helped small banks become more competitive, the vulnerable in the industry still have to combat large profitability gaps. The total profits of about 5,000 US banks reporting to the FDIC increased by 281% in the last quarter, while the profits of community banks, which account for 91% of the market, increased by less than one-third.
Quick Fire Q & A
Every week, we introduce ourselves to the fast-growing FinTech and ask them to explain why they stand out in a crowded industry.
Robo-advisors have recently been raging in the European market, where a limited desire for automated investment tools has led to a series of closures that have attracted the attention of companies such as Scalable Capital, Mura, and Investec’s Click & Invest. But this week I spoke with Marc Tempelman, co-founder of Paris-based Cashbee. He believes there are optimistic reasons for the industry. Former Bank of America executives say the robo-advisor, founded with Cyril Garbois and Chaker Nakhli in November 2019, has struck a chord with savers. Since January, Cashbee’s customer base has grown from hundreds to over 4,000 and its assets under management have increased from € 27 million to € 82 million.
How does your business model differ from a typical robo-advisor?
We recognize that culturally, European rescuers are very risk-averse and financially very often anxious. We designed the app to fit the cultural background of European savers. This is very different from the American way. The paradox we observed was that Europeans are good at putting money aside, but it’s scary to make it work. Instead of bringing our clients to the stock market right away, we designed a completely free and very simple yield savings account. [Then] We pick them up and gradually accompany them to high-yielding long-term savings solutions. The secret is its first savings product, thereby addressing the huge cultural barriers that give European savers access to the money they work for them.
How do you make money?
For savings accounts, the model relies on receiving fees from the bank that actually needs the deposit, so it receives payment from the bank that brings the deposit. For long-term savings funds, our model is to act as a broker and earn commission reductions.
How much did you raise and who are your investors?
Raised € 2.5 million from business angels, including Didier Valet.
How did Covid impact your business when it was trying to get it on track?
Covid did two things. The first thing it did was to force people to save even more. Therefore, the amount of money in a dormant cash account that basically returns a negative yield has exploded beyond the huge amount that Europeans have already reserved in interest-free or very low interest rate accounts. rice field. At the same time, people were beginning to worry more about their financial future. As a result of the Covid crisis, more and more people have begun to think more tactically about savings. It helped us.
During the summer, you announced a partnership with payment company Lydia and offered a savings account as part of the “super app” you are trying to build. Do you want Cashbee to eventually become a super app on its own?
No, we consider ourselves to be your private bank in your pocket. We are a savings app, but customers are expensive to get. For us, our partnership with Lydia is a great way to access our services and bring them to the masses. And for them, it’s a great way to add components and tools to the range of solutions they’re building to become the superappli they want. There are so many platforms that want to monetize their client base and have spent years building them. Service savings are a must for anyone looking to become a SuperAppli.
Why can’t the incumbent do what you’re doing?
Traditional banks don’t really have the human resources or the digital tools to serve the masses. For them, giving the client the right advice depends on the number of bankers you can put in front of your client. Therefore, there is a linear correlation between the number of clients that can serve and the number of banks that need to be hired.
