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Monday, June 21, 2021

Chief Executive Insights

A renewed business model: Lessons from FinTech as banking goes Beyond Good

Bradley Leimer, Co-Founder of Unconventional Ventures

It was the best of times—then, suddenly, it was the worst. Nothing quite like a global pandemic to recast the lives of billions. As we look forward to a return to some form of normal, fully knowing it will have to be a very different normal, we have collectively clung to one word that will define a future not yet written: hope.

But what does that really mean for business models going forward post-pandemic? And what can we learn from industries that have thrived during this period of time when most of the world felt little solace?

One area where our global economy continued to grow, innovate and renew itself—despite the pandemic and despite a decade of economic challenges post Great Recession—was financial services. There has been a venture capital-fueled renaissance, from payments to credit and everything in between: more than $168 billion has been invested into financial technology (fintech) start-ups over the past decade, infusing the business model with new ideas, new value propositions and new opportunity. In fact, as of Q1 2021, there were 10,605 financial technology start-ups in the Americas, 9,311 in EMEA and 6,129 in Asia. But this new competition has not been bad for the banking industry.

While many of banking’s long-term profit centers have seen reduction in both market share and revenue, the vast majority of incumbent banks have retained stronger balance sheets and stronger profitability overall. How have they achieved this? By leveraging new technology and new partnerships, and through a renewed urgency to deliver new value propositions to their customers. The primary lessons leaders can take from this decade of externally driven innovation can be viewed as a necessary and long-delayed business model evolution in the face of a perpetual revolution impacting nearly every vertical. And that’s where the lessons lie, as incumbents from Chase to Citi to BBVA and Santander have embraced this challenge.

Technology as a force for good

Very few areas of banking have been untouched by these changes. Emerging technologies from cloud computing to blockchain, artificial intelligence to machine learning to the rise of digital delivery and automated services have simply transformed financial services. Banks have learned from these investments too—a third of FinTech investments involve a corporate venture team—many from banks themselves. Every industry facing similar threats should consider embracing these nimbler providers and develop opportunities for partnership to extend their own service model. But that’s only the first step.

Future bank models will not only increasingly be driven by new technologies, but by consumers who are spending more time than ever on their mobile devices, who have grown accustomed to the seamless experience seen with non-bank providers and are anxious when their needs are not met and furious when their voices are not heard. In response, incumbent banks are creating a broader ecosystem of partnerships to improve their core offerings—in order to create new customer value over time. To build new value, financial institutions are reimagining banking itself within the context of our daily lives, our routines, our needs, our desires and their impact on our future. They are also looking at new communities to serve, and this an important lesson for every industry, especially in our post-pandemic world. This sense of community (and a need for purpose post-pandemic) is stronger than ever.

The banking industry is looking at more opportunities to support the entire fabric of our communities. Consider some of the following fintech start-ups and their approach to serving their communities: Daylight (serving the LGBTQ community), Cheese (Asian Americans), First Boulevard and Greenwood (African Americans), Qwil, Lili and Stoovo (gig workers and freelancers), Sunrise Banks (immigrants), Aspiration (climate conscious consumers), Stretch (recently released prisoners), TAB bank (a focus on the needs of truckers and transportation) and Purple (people with disabilities). These are all underserved communities that represent tremendous opportunities to serve more of our diverse society.

These are companies that understand that how you define “community” matters, and that meeting the specific needs of those you are serving matters a great deal. As more community-focused fintech start-ups grow and demonstrate how technology can help connect us through commonalities, incumbents will be able to partner or attempt to replicate this renewed sense of service toward more of our society. And through new technologies and new services, the ability to connect more value to more community stakeholders will become critical table stakes capability in the future.

Lessons learned, lessons applied

What can traditional banks learn from these new start-up banks? That building a financial identity around your community matters—that you are more likely to have your needs met, your voice heard, your own identity acknowledged—when the people that are running the financial entity look like you and represent who you are as a community. Will the introduction of alternatives to the incumbent business model—whether in banking or elsewhere—really improve the lives of the communities we are privileged to serve? Time will tell.

While we see start-ups focused on specific communities, will the embedded incumbents focus more on serving the needs of women, communities of color, solo entrepreneurs and gig-workers, or the growing opportunities within serving older adults and the longevity economy? Will the industry improve the economic condition by extending more credit opportunities and creating more sustainable opportunities for wealth creation to more people? Beyond banking, the evolution toward a more inclusive society will require new business models and new forms of empathy driven into existing business practices. This propels companies to use its resources and influence to tackle social issues and give back to the communities. There are good reasons for businesses to consider alternatives to business as usual. But it is much more than that.

If banking can be more inclusive, can your industry be too?

It turns out that you can do well and do good at the same time. Businesses—from financial services and beyond—can serve more members of our communities and improve their underlying revenue. It comes down to decisions that we all make as leaders to understand the opportunity costs of exclusion. Long term, being more inclusive and serving more members of our communities can help alleviate systemic issues like poverty and hunger and wealth inequality through broadening the definition of financial inclusion. By lifting those in need, we uplift our whole community. And together, we can all thrive in a stronger and better future. These are among the principles that drive us to go Beyond Good.


Written by Bradley Leimer.

Bradley Leimer
Bradley Leimer is the co-author of Beyond Good: How Technology is Leading a Purpose-driven Business Revolution. He is Co-Founder of Unconventional Ventures, which connects founders to funders, provides mentorship to entrepreneurs, advisory to corporates, and broadens opportunities for diversity within the financial services ecosystem. Bradley co-hosts One Vision, a podcast on fintech, technology, and innovation. He speaks about banking and technology trends, advises start-ups, accelerators and key industry conferences in the financial services space, and writes for publications like International Banker, American Banker, Journal of Digital Banking, and Irish Tech News. Bradley's mantra is simply to make banking better.

As the former Head of Innovation at Santander, his team connected the bank to the fintech ecosystem and served as an observatory for the global organization for trends originating in the U.S. that have potential to expand and accelerate globally. He adds additional perspective leading marketing and technology teams and projects within the bank and credit union industry and from a decade driving database marketing and analytic programs for community and regional financial services organizations.

Bradley Leimer is an opinion columnist for the CEOWORLD magazine. You can follow him on LinkedIn.