September 11, 2017

CT fintechs reimagining the banking landscape

HBJ Photo | Steve Laschever
HBJ Photo | Steve Laschever
NYMBUS President David Mitchell says financial-technology services providers, or “fintechs'', like his aim to assist smaller, community banks in Connecticut and New England move deeper into the Digital Age.
Matthew Rhodes-Kropf, a Boston venture-capital investor
Louis Hernandez Jr., co-founder, Payveris and Open Solutions Inc.

By the Numbers: Fintechs' Growth

The percentage increase in venture capital raised by financial technology companies during the second quarter of 2017.

The total venture capital raised by fintechs during the second quarter of 2017.

The projected increase in fintech venture capital investment in 2017 compared to 2016.

Source: CB Insights

With the recent arrival of a financial-technology, or "fintech,'' company in Glastonbury, community banks and credit unions in Connecticut and New England are bracing for intensified competition to digitally deliver access to cash, deposits, loans and other financial services.

In June, Florida digital-services provider NYMBUS opened an office at 200 Glastonbury Blvd., with 45 employees as it prepares to debut this fall its core digital-services platform to banks and credit unions. By year end, the company will have around 75 workers in Glastonbury.

NYMBUS represents the state's newest fintech entrant, but it's certainly not the only player. In fact, central Connecticut houses a small fintech cluster — including established companies like COCC in Southington and SS&C Technologies in Windsor — whose recent growth is proof of financial institutions' quickening pace to adopt digital technology that customers increasingly prefer, observers say. Connecticut's deep pool of IT talent, too, is a draw to fintechs.

Their presence is matched by larger national players such as FIServe and Jack Henry & Associates, which are increasingly developing digital services that will enable banks to make their products and services cheaper, more efficient and more widely available, says Matthew Rhodes-Kropf, a Boston venture-capital investor in fintechs and other technology companies.

"The (fintech) landscape is huge,'' said Rhodes-Kropf, managing director of Tectonic Ventures in Boston and a visiting finance professor at the Massachusetts Institute of Technology. "People are trying to reimagine banking.''

Small bank tech lifeline

Financial institutions covet the kind of digital innovation in their retail-banking operations that enhance their "customer experiences,'' much as Amazon, Facebook and Google do, says David Mitchell, a Vernon native who is NYMBUS' president.

To accomplish that, smaller, community financial lenders, with the help of fintechs, are adapting their core IT networks to do more than just track loans and checking-savings accounts, accept deposits and dispense or transfer funds. Banks increasingly want "smart'' networks that filter customer data so lenders can anticipate what other retail products or services consumers need, such as retirement accounts or financial-planning services, before they ask for them.

"We are laser-focused on helping these community financial institutions not just survive but thrive in this Digital Age,'' Mitchell said. "In the end, community banks and credit unions are the pillars of our local communities, aren't they?"

With so many nonbank options available to consumers online, traditional brick-and-mortar financial institutions, especially smaller, community lenders, are finding that their older, legacy IT networks are not fully up to competing for consumers in the digital era, Mitchell said.

While large, money-center institutions like Bank of America, JPMorgan Chase Bank and Wells Fargo Bank can afford armies of in-house product and app developers, fintechs offer the same to smaller institutions at a fraction of that cost, fintech experts say.

Moreover, the shrinking numbers of U.S. banks and credit unions have lent a sense of urgency to fintechs. Connecticut counts some 40 community banks — about half as many as in 1994. For survivors, the challenge is having enough capital to invest in digital technology.

Fintechs can level the competitive playing field for smaller financial institutions, said New England technology entrepreneur Louis Hernandez Jr., who co-founded Rocky Hill digital-payments facilitator Payveris and Open Solutions Inc. (OSI) in Glastonbury, which was eventually bought by FiServ. He continues to invest in technology via his Black Dragon Capital LLC unit. He's now chairman and CEO of Massachusetts technology/multimedia firm Avid Technology.

"Let's put community-based institutions back in the center of these transactions," Hernandez said, "instead of having to go around them because they lack the technology.''

To help smaller lenders, Mitchell said NYMBUS is introducing Oct. 15 its new core IT platform that bank clients can use not only to drive their daily operations but also provide new capabilities for growth. NYMBUS, for example, devised an IT platform that enabled two media companies — Gannett and Trinity Mirror — better manage their advertising lifecycles, billing and operational workflows. Eventually, NYMBUS eyes introducing its core product to other industries lagging digitally, such as insurance and health care.

As an incentive to join NYMBUS's network, Mitchell says the company has been buying out some banks' existing fintech contracts and paying their termination fees.

"Current legacy IT systems that run most banks and credit unions throughout the U.S, including Connecticut and all of New England, are significantly ill-equipped to support the Digital Age,'' Mitchell said. "These legacy systems are typically built around an account and not a customer, thus they were never designed with current digital-channel requirements in mind and are unsuitable to service the needs of today's digital economy."

Not all fintechs the same

Fintech is an overly broad descriptor for information-technology vendors such as COCC, the half-century-old Southington firm owned by 175 New England lenders. COCC assists banks by helping them set up and manage the digital spine that member-institutions rely on to provide electronic and mobile banking and other remote services. Windsor's SS&C Technologies is a highly successful fintech that serves primarily mutual-fund operators and other Wall Street financial-investment servicers and advisors.

In addition, Wisconsin-based FIServ, this nation's largest provider of data- and services-processing support to banks, serves finance customers throughout New England.

Four years ago, FIServ acquired former Open Solutions in a deal worth more than $1 billion. FIServ now offers many of Open Solutions' add-on technology products to banks, thrifts and credit unions through COCC and other fintechs.

"The majority of us in Connecticut consider ourselves fintechs … that partner with financial institutions,'' said Michael Nicastro, CEO of Continuity in New Haven, a "reg-tech" that aids banks with their regulatory compliance. "We're not out to do their business.''

The automated teller machine and debit cards and cellphone and personal-computer access consumers rely on to make purchases and bank online require sophisticated software and applications algorithms. COCC, FIServ, and a roster of newer technology providers springing up, are investing huge sums to create and sustain the digital infrastructure to support such offerings.

Although COCC and FIServ are partners, COCC relies on its in-house team of developers to devise new apps that enhance its core services, said COCC President Joseph Lockwood.

"Having the ability to extend the core banking platform, while designing new consumer- and business-delivery channels provides us with an immense advantage over most fintechs,'' Lockwood said.

Other fintechs, such as Payveris, assist banks and their depositors with their online-payments and wire-fund transfer features. Others, like Quicken Loan and Ally Bank, compete against banks with online mortgages and other loans. Wall Street investment house Goldman Sachs a year ago debuted an online bank offering savings accounts with a minimum $1 deposit. Still others, including cryptocoin providers like bitcoin, are increasingly crowding fintechs' space, observers say.

But experts say changes are occurring, particularly among fintechs that collaborate with financial institutions, that within the next decade could make lenders more convenient and responsive to their customers.

It won't be enough to simply offer online transactions, experts say.

What bankers really want these days, according to Rhodes-Kropf and others, is to mimic the ability of internet giants like Amazon and Google that not only track the personal profiles of their members but also their spending and other habits by monitoring their online activity. That means the ability to amass, analyze and then intuitively mobilize those huge volumes of data into product and service offerings.

But doubts are also emerging as to how transformative fintechs will be to the banking landscape. Indeed, so-called "big tech'' players such as Amazon and Google, not fintechs, pose more of a disruptive threat to financial-services technology, according to a recent report by the World Economic Forum. It notes that Amazon's cloud-based web technology, for instance, is used by a number of financial players, among them Capital One, Nasdaq and Stripe.

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