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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Customer engagement specialist Digital Onboardingannounced its Series A round today. The amount of funding was undisclosed and adds to the company’s existing $4.3 million in seed funds. Contributors include Detroit Venture Partners and other institutional and individual investors.
Along with today’s investment, FINTOP Capital Partner John Philpott, Jack Henry Senior Managing Director Shawn Ward, and a founding member of S1 Corporation joined the Board of Directors.
The company plans to use the funds, along with the fresh influx of expertise on its board, to begin “accelerating the execution of [its] product roadmap, scaling account management, and expanding sales.”
Digital Onboarding’s SaaS offering helps banks deliver compelling services that keep customers around for the long-term. The company is especially effective in helping motivate accountholders to take action because it aggregates data across banks with similar business objectives.
“Banks have myopically focused on getting new accounts opened to meet aggressive sales targets and are now being forced to contend with the reality that new accounts are worthless if they’re not converted into engaged relationships,” said Digital Onboarding CEO Ted Brown. “The Digital Onboarding platform has been proven to drive the adoption of additional products and services like digital banking, direct deposit, and automatic payments which drive long-term profitability.”
The funding comes at a time of increased demand for digital services of all kinds. Since many non-digital native customers are now needing to conduct much of their banking activities remotely, maintaining connection with them through digital channels is more essential than ever.
Digital Onboarding was founded in 2015 and is partnered with 40+ financial institutions that together represent $160+ billion in assets. The company most recently demoed at FinovateFall 2018. You can catch an all-new round of demos at FinovateFall Digital next month. Stream the event from anywhere on the globe September 14 through September 18.
The following is sponsored content from LendingFront.
With Covid-19 on the minds of businesses and lenders alike, conversations about the capital needs of small businesses have revolved—with obvious justification—around the Paycheck Protection Program (PPP) and other forms of relief provided under the CARES Act.
Yet the capital needs of many small businesses don’t begin and end with the PPP.
Let’s start with a few facts
According to the U.S. Federal Reserve’s 2019 Small Business Credit Survey:
43% of small businesses sought external funding for their businesses in 2018
And more than half experienced a funding shortfall.
These funds—when small businesses can obtain them—are often used to purchase inventory, replace equipment, finance expansion, and hire new workers.
These needs will persist long after PPP lending has come to an end, yet even in a strong economy, up to 80% of bank-originated small business loan applications are rejected.
In the post Covid-19 environment, we can expect that percentage to be even higher
That’s because the conventional underwriting criteria for small business loans will no longer work. Traditionally, both bank- and non-bank lenders have relied on four criteria for underwriting small business loans:
Tax/Financial Statements
Credit Scores
Collateral
Owner Wealth
In a normal economy, these criteria are fine, but they’ll do little to show the true state of a business in the post Covid-19 environment. 2019’s tax/financial statements will be all but irrelevant. Credit scores will be damaged as a result of the inability to make payments during a forced closure. Collateral will have questionable value if bankruptcies spike. And owner wealth will have been tapped in an effort to keep many businesses afloat.
Are we headed towards a capital drought?
With traditional underwriting criteria no longer useful, are we headed toward a capital drought? We certainly don’t need to, but the answer largely hinges upon lenders doing two things:
Adopting new criteria that are more appropriate for the post Covid-19 environment
Adopting new product structures that enable the lender to manage risk
New credit criteria include information such as:
Real-time Cash Flow Cash flow helps you gauge how quickly the business is recovering from Covid-19. Is it in irreversible decline? Is it struggling but stable? Has it gotten back to normal? Insight into real-time cash flow helps lenders make better decisions about who to lend to along with the terms of any offers.
Consumer Sentiment Customers who vote with their reviews also vote with their wallets. Examine reviews from Google, Yelp, and other sources to answer, Is this a business that customers love? Businesses that are well-regarded by customers stand a much better chance of recovering than those that had problems before the pandemic shut them down.
New product structures also enable lenders to deliver capital efficiently while managing risk
Here’s how:
Shorter Terms First, lenders should emphasize shorter payback periods in the range of 6-12 months. Shorter terms get the lender paid back faster while enabling the business owner to show that he/she is creditworthy before seeking a larger amount of capital.
Daily ACH Payments Second, lenders should collect payments from the borrower on a daily—rather than monthly—basis. Monthly payments introduce unnecessary operational risk. Daily payments are smaller, consistent, and more predictable from the standpoint of the business’ cash flow.
Tie Payments to Performance Lastly, lenders should tie payment terms to current cash flow performance—and with visibility into cash flow, this is very easy to do.
A new economy needs new rules for lending
If the Great Recession taught us anything, it’s that opportunities exist for lenders to increase their assets, gain market share and, of course, to meet the capital needs of their borrowers. In the post Covid-19 environment, lending is only as risky as the information used to make decisions. With better underwriting criteria and more appropriate product structures, the most forward-thinking lenders will position themselves for success and reap the rewards.
A recent analysis by Brookings looked how technology, platform regulation, and China policy may be impacted by the policies of a future Joe Biden/Kamala Harris administration should President Trump fail to be re-elected. As might be expected, the review pointed to greater regulation – including anti-bias and worker rights advocacy – as one likely outcome if a new administration takes office next year.
Also interesting are the ways that the Brookings analysts – and others – see a Biden/Harris administration as an enabler of technological advancement and innovation, especially in the area of technology infrastructure. This is also one of the ways where a Biden/Harris administration could be most constructive for fintech.
As the Brookings analysts point out, the fact that the Democratic vice presidential nominee is a Senator from California (who represents Silicon Valley) suggests that there might be greater insight into the issues and challenges of the 21st century technology industry than exists in the current administration.
This likely cuts both ways. A Democratic administration would likely be more supportive of immigration policies that would enable tech firms to keep and attract more talent – as well as for international talent to decide to innovate and build in the U.S. rather than in Europe or Asia. This would benefit fintechs across the board as much as it would benefit technology companies generally.
At the same, there’s no doubt that regulation – especially financial regulation – would likely see a resurgence. While many are wondering about the prospects of an Obamacare 2.0 in a Biden/Harris administration, fewer are discussing the possibility of a CPFB 2.0 and the likelihood of a renewed attention on fintech’s lenders in particular. I think that the CPFB’s creator, Massachusetts Senator Elizabeth Warren, would probably not be headed to Treasury in the event the American people put Joe Biden in the White House, but her influence on the resurrection of the agency would be powerful.
At the same time, it is worth remembering that Joe Biden has a far different historical relationship to the world of finance, if not fintech, compared to Senator Warren. As a multi-decade senator of Delaware, Biden has been criticized – including by Senator Warren – for his “energetic work on behalf of the credit card companies.” A 19th century Delaware law allows any American company to incorporate in the state and not a few firms over the years have taken advantage of this to “place their profits in Delaware-based holding companies to avoid paying taxes in the places where they actually operate” as Tim Murphy described in Mother Jones last year.
It may be too much to suggest that the First 100 Days of a Biden Administration would feature a tug-of-war between the new president and Warren over the appropriate attitude toward consumer lending and credit. But the presence of both does suggest that any policy that emerges could be more moderate than might otherwise seem.
Tandem Bank announced its latest acquisition this week. The U.K.-based bank has purchased Allium Money, an alternative lender that offers consumers financing to improve the energy efficiency of their homes.
Specific terms of the deal were not disclosed, but it is made possible by Tandem’s $78 million (£60 million) funding round that was led by Qatar Investment Authority and closed last week.
Tandem Bank will use Allium to enhance its existing in-house lending suite, tapping into Allium’s green lending solutions that help homeowners finance everything from insulation to efficient windows to solar panels.
“This is great news for our customers and the team that have worked tirelessly to develop the business focussing on financing improvements for our environment,” said Allium CEO Paul Noble. “The combination of Allium and Tandem will create the ability to rapidly scale a green banking proposition and help more customers access green finance products.” Noble will join Tandem’s executive team.
The partnership comes at a good time. With an increased focus on climate change and awareness of their impact on the environment, consumers have shown heightened interest in green initiatives. Along with home improvements, ESG (environmental, social, and governance) investing is also gaining interest.
Tandem Bank has raised $175 million (£134.3 million) since it was founded in 2013. The challenger bank’s 700,000 customers have access to Tandem’s accounts that include Autosavings technology, credit card, and, coming soon, cashback rewards.
Digital receipts platform ReceiptHero will join Mastercard’s Lighthouse Development Program in September. The Helsinki, Finland-based company made its Finovate debut earlier this year at our Berlin conference, demonstrating how its digital receipts technology makes accounting easier for banks and PSPs while giving customers greater transparency into their spending.
ReceiptHero is one of 15 companies from the Nordic and Baltic countries to be included in the program’s fall cohort. Participating startups will work with program partners such as Swedbank, SEB, and OP Bank, and receive guidance on topics such as communications and marketing, as well as strategic development. The startups also will explore potential collaboration opportunities with program partners. In the final stage of the program, the companies will have the ability to make digital pitches to investors.
“By joining the latest Lighthouse batch, we hope to work closely with Mastercard and its partnering banks on making digital receipts the new normal,” ReceiptHero CEO Joel Ojala said.
Also participating in the fall program are five companies from Sweden: Gimi, Charge, Youcal, Ponture, and FossID; and five companies from Lithuania: Kevin, ConnectPay, Regvolution, Spell, and Savings Pands. In addition to ReceiptHero, there are another four companies from Finland: Voima Gold, XMLdation, Arctic Security, and InvestSuit.
“In every edition of the Lighthouse Program, we can see that the Nordics and Baltics are genuinely leading in payments innovation,” Head of Digital Development and Fintech Engagement for Mastercard in the Nordics and Baltics Mats Taraldsson said. “This proves the importance of strengthening the ecosystem through open innovation platforms such as Lighthouse.”
Founded in 2018, ReceiptHero teamed up with Verifone last fall, enabling digital receipts to be linked to customers’ payment cards. Verifone has a major presence in the Nordic region, and the partnership allowed ReceiptHero to access not only a larger part of the Finland market, but also to expand to other Baltic countries where Verifone “already has a large footprint,” Ojala said. Later that same month, ReceiptHero announced a collaboration with Nordea, which added the company’s digital receipts to its Nordea Wallet app.
ReceiptHero began 2020 with a pledge to plant one million trees by 2025 by donating $1 to conservation charity One Tree Planted for every new merchant that joins its digital receipt platform.
This is a guest post by Sandeep Sood, CEO of Kunai.
Will Digital Behavior Affect Credit Scores in the Future?
Credit scores are about to take another leap forward—or backward, depending on how you see the future. People’s digital lives leave a trail of data “exhaust” that some countries are beginning to leverage to understand and better predict their behavior.
Assessing someone’s credit risk without traditional financial information is tricky business. Inevitably, concerns about privacy and credit-based blacklists arise.
For as long as there is debt, there will be debate about the subjective measures that determine who can be trusted to repay it. To understand how we got here and where we’re going, we’ll need to review the history of credit scoring as we know it.
Where Did the FICO Score Come From?
Formal credit reporting began in the U.S. in 1841. Ledgers in New York recorded borrowers’ creditworthiness, however these reports were extremely biased. Entries included advice such as “prudence in large transactions with all Jews should be used.” A more fact-based, alphanumeric system was developed in 1857 and used well into the 1900s.
Starting in the 1950s, computerized credit ratings used algorithms to automate scoring. FICO was born, and made rapid lending approvals possible.
In a world with Facebook and Google, it’s hard to think of an algorithm that has a greater effect on our day-to-day lives. It dictates the jobs we get and the places we can live. Yet, the algorithm is cryptic and occasionally biased, even if it works most of the time. FICO is far from perfect, but it’s the best system we’ve got—for now.
Alternative Scoring Methods Help Bankless Borrowers, at a Cost
Around the world, many people don’t engage in the banking and credit card transactions that feed the FICO algorithm. This has led to explorations of other credit scoring methods.
Fast-growing startup Tala, for example, is using the ubiquity of cell phones to bring credit scoring to unbanked borrowers. Applicants surrender their mobile data, and Tala monitors bill payment history, text messages, and behavioral data gleaned from their device to provide a unique “mobile credit score”.
For people who need loans, giving up personal information is worth the sacrifice. Tala arose out of the need for better information in countries without established credit systems, making credit available to people who otherwise would not have access to it.
China’s Social Credit and the Big Brother Debate
In parts of China, credit is returning to a reputation-based model. Various local programs measure social credit based on behavior. Some of this is tracked online, similar to Tala’s methods, but facial recognition and CCTV networks are also leveraged to ding people’s scores. Littering, failing to cede right of way to pedestrians while driving, and other actions deemed socially harmful can affect someone’s score.
While these pilot programs feel Orwellian, the Chinese system remains in a nascent stage of development. Perhaps one day soon, the West’s fears of Chinese social control will be justified. And then the question is, how will the rest of the world respond?
The Future of Credit Scoring
The credit score is a fundamental pillar of our modern financial system. But it’s difficult to define a universal set of attributes to determine every American’s credit risk.
Cryptocurrency may offer a viable solution. Finance startup Bloom is already leveraging the recorded financial history available on the blockchain. Since all transactions are permanently stored in a public record, cryptocurrency provides an immutable source of truth. While there is no history on the blockchain yet, it could be a game-changer once developed.
But data and its surrender aren’t going to suddenly change a system that’s been, more or less, working since the 1950s. In fact, too much data can lead to bad models that over-index for characteristics that work well in one population but do just the opposite for another.
As these experiments continue, they’ll likely bring a more stable, accessible credit system to countries in the wild west of credit scoring. In five to ten years, their successes and failures may very well lead to breakthroughs that influence how FICO evolves. But for now, FICO is proving it works well enough without the glut of invasive personal data.
Sandeep Sood is the CEO of Kunai, a product development company that has been building digital products for 20 years. See more of his articles at Kunaico.com along with Kunai’s work. Follow him on Twitter @sandeep_k_sood.
Starting this week, NatWest is making it easier for clients to get the help they need to make their banking experience easier. The initiative is called Banking My Way and provides a single place for customers of the U.K.-based bank to input their preferences so that they are addressed across all channels.
The preferences are divided into two sections, About me, which addresses vulnerabilities or disabilities such as being visually or hearing impaired, and Support me, which focuses on how the bank can support the user, such as speaking slowly and clearly or not assuming a gender when addressing them.
“Banking My Way will allow you to tell us more about your current circumstances and the difficulties that you are facing with your banking,” NatWest explained on its website. “This will allow you to also tell us about the support you require, and we will ensure that this information is shared with our teams to support any further interactions that you have with us.”
Clients can input or change preferences online, in a branch, or via phone. In order to ensure information is up-to-date, users will be asked to review their preferences on an annual basis.
This is an amazingly simple idea, but because it is a pull, rather than a push approach, it may be lost on some consumers. That said, NatWest will have the best response rates with this system if it is implemented as part of the onboarding process, instead of being structured as a separate item customers need to register for.
The West won the Cold War, says conventional thinking, not via open confrontation, but by making the cost of competition prohibitively high for its adversary. Some of the brightest minds in the digital identity business believe that a similar approach is key to undermining the ability of criminals to profit from cyberfraud.
“Eliminating all fraudulent accounts is an admirable goal, but perhaps unattainable,” wrote Cameron D’Ambrosi, Principal, One World Identity, and an upcoming participant in our FinovateFall DigitalFuture Financial Crime roundtable. “Making it more expensive to create a fraudulent account than the profit generated by a fraudulent account is … achievable. It will go the farthest towards meeting the goals of trust and growth teams alike.”
In a blog post earlier this year, D’Ambrosi put the case for digital identity in the context of the current global health crisis, seeing COVID-19 – and the social and economic response to it – as an accelerant of trends that had been in place before the onset of the coronavirus.
As D’Amborsi explains, in a world in which individuals are increasingly accessing an ever-growing array of digital platforms – on their own or under the influence of algorithms – distinguishing authentic users from digital-created fakes and imposters – is critical to a 21st century online experience that can be trusted. This challenge will be all the more intense because of the incentive brands and businesses will have to “go viral” and spread their content as widely as possible. Ensuring that customers are not conned by brands that are scams and that merchants are not fooled by customer-impersonating bots is a key task for digital identity companies today.
On the issue of digital identity and financial crime, Jas Randhawa, Chief Compliance Officer for Stripe has underscored the rise and challenge of “newer fraud typologies” and opportunities for fraud in the current, COVID-19 environment. He has also observed that the renewed volatility of the stock market during the global pandemic unfortunately has also provided fertile ground for fraudsters. Add to this the powerful incentive for merchants and other businesses to “go digital” in response to lockdowns and work-from-home, and the result is additional pressure on the ability of the identity management infrastructure – for institutions and individuals alike- to determine real, legitimate actors from fake or malevolent ones.
Randhawa will also join our FinovateFall Digital conversation on Future Financial Crime this September. A 14-year veteran of financial crimes and compliance management – including six years with PwC – and a certified anti-money laundering specialist, Randhawa has emphasized three general themes from his experience in compliance: de-siloing decision-making, embracing technology, and understanding the cyclic nature of identifying problems, developing solutions, innovating as new challenges arise – and then starting the whole process over again.
Randhawa’s example of Stripe is interesting, given that the company is a digital-first entity. While that shielded the firm from having to digitize in the middle of a pandemic, the company was faced with the task of securely onboarding a surge of businesses who had suddenly made the decision to pursue digitalization. Moreover, the company needed to thread the needle of keeping bad actors off the platform while not being so restrictive as to undermine its own goal of “growing the GDP of the Internet.”
For Randhawa the current circumstance likely represents a New Normal as far as the innovation cycle in compliance is concerned. “We’ll have to keep whacking away at this problem,” he said during an online panel earlier this year, Real Identity Validation in a Digital World, sponsored by One World Identity. He emphasized that creativity will be required in order to achieve an experience that is simultaneously the most seamless and the most secure.
Among the companies helping businesses and individuals cope with the new requirements of the New Normal are firms like Jumio and SheerID. Both companies are innovators in the digital identity management space, both Finovate alums, and both portfolio companies of venture capital firm Centana Growth Partners. Founded in 2015, Centana considers authentication and identity technology companies among its core competencies and the firm’s co-founder Eric Byunn will also join our conversation on Future Financial Crime next month.
“Authentication is of critical importance to a broad range of online and mobile applications across industries such as financial services, e-commerce, travel, and the entire sharing economy,” Byunn said four years ago when Centana acquired Jumio, making a statement that is all the more true today. He called identity “top-of-mind for companies” last fall when SheerID was named to the Deloitte Technology Fast 500.
Centana also has a more direct commitment to financial crime fighting than just its investments in digital identity innovators. The VC firm is also a backer of SpyCloud, a Finovate Best of Show winning startup that specializes combating account takeover (ATO) fraud and recovering stolen credentials from the online criminal underworld or “dark web.” SpyCloud raised $30 million in funding earlier this week in a round led by Centana and featuring the participation of Microsoft’s venture capital fund, M12, as well as Altos Ventures, Silverton Partners, and March Capital Partners.
“SpyCloud’s approach to fraud prevention is helping businesses protect themselves and their customers at a time when threats are more pervasive than we’ve ever seen,” Byunn said when the funding was announced. “We heard from major financial institutions and a wide range of enterprises that SpyCloud’s solutions are critically important to their anti-fraud efforts.”
The fact that VC firms continue to plow money into companies that fight cybercrime – either directly like SpyCloud or indirectly by enhancing the identity management infrastructures we rely on – is a positive sign in and of itself. But in the context of winning the arms race against technology-savvy criminal adversaries, it’s a welcome indication that the money is flowing in an area where the challenge appears never-ending.
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
Scientia’sFinTech Insights is a research tool that analyzes behind login screens the digital banking offerings from high-street banks, challengers and fintechs around the world.
Features
Understand your competitors’ digital banking offerings, in depth
Perform real gap analysis, in detail
Simplify compliance by understanding how others tackle the same challenges
Why it’s great FinTech Insights provides you the data you need to understand your local and international digital banking competition. In-depth, it analyzes every single function and transaction.
Presenters
Alexandros C. Argyriou, CEO Argyriou is Scientia’s CEO and has been involved with some of the largest Digital Banking Transformation projects worldwide. LinkedIn
Erenia Kontolatou, Head of Business Development Kontolatou is Head of Scientia’s Business Development, bringing vast experience from the fintech ecosystem. LinkedIn
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
Finzly’sFinzlyBankOS enables financial institutions to subscribe, try, and launch Finzly and third party apps that modernize the digital experience for consumers and businesses.
Features
Open banking API enables third party service providers
Specialty banking options to support new market opportunities
Freedom from legacy technology limitations
Why it’s great Finzly BankOS helps FIs create and choose best-in-class products and services for their customers while quickly and seamlessly adding new solutions through Finzly’s plugin app-based architecture.
Presenters
David Hunkele, Chief Strategy Officer Hunkele is Chief Strategy Officer and advisor with expertise in SaaS software, cloud-banking, go-to-market strategy, and digital transformation within fintech and financial services. LinkedIn
Terry Howell, CTO Terry Howell is co-CTO and VP of Technology for Finzly with responsibility for R&D of the BankOS platform, treasury and digital banking products, and quality assurance, test and engineering automation. LinkedIn
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
Remitter is a white labelled digital communications platform powered by artificial intelligence that helps lenders maximize revenue by optimizing customer engagement.
Features
SMS and email intelligent engagement
Reaching customers on their preferred channel, at the right time and language
No downloading apps, remembering logins, or speaking to an agent
Why it’s great Remitter’s secure white-labelled platform engages customers with personalized mobile communications to increase collections and maximize revenue for our customers.
Presenters
David Nathanson, EVP & Head of Sales Nathanson joins Remitter after spending the past ten years in a variety of senior leadership roles. He is responsible for leading all sales and business develpoment. LinkedIn
Roxanne Bartley, EVP Strategic Partnerships Bartley is EVP of Strategic Partnerships. In this role she is responsible for cultivating strategic relationships and driving business development across Remitter with key partners. LinkedIn
A look at the companies demoing at FinovateAsia Digital on June 22, 2021. Register today and save your spot.
Your fintech product. Millions of users. One integration. Q2’sQ2 Partner Marketplace lets you offer your fintech products to more than 400 bank and credit union customers.
Features
Rapid partnership
Streamlined integration to over 450 financial institutions
Target end users through a trusted channel
Why it’s great The path to partnering with financial institutions is hard. The Q2 Partner Marketplace makes it simple.
Presenters
Greg Varnell, VP Engineering Varnell has worked in the technology arena for over 20 years. With more than ten years of experience at Q2, he is responsible for creating and growing the Q2 Caliper SDK team. LinkedIn
Derik Sutton, VP Product & Experience, Autobooks Sutton joined Autobooks in 2018 as Vice President of Product and Experience. As part of the executive team, Derik leads Autobooks’ product, design, and marketing execution. LinkedIn
