Tips for the Tech-Focused Financial Institution

Posted by Paul Davis on Jul 19, 2023 11:07:00 AM


This year is proving to be pivotal for tech-focused banks and credit unions.

Real-time payments will get a shot in the arm from FedNow’s debut, while Banking-as-a-Service (BaaS) is plugging more fintechs into mainstream financial services. Still, the failures of Silicon Valley Bank and Signature Bank created challenges for some early-stage companies.

Against that backdrop, I find it’s important to take note when the leader of a tech-savvy bank shares his or her thoughts on the trajectory of the financial services industry.

I had the pleasure of hearing Mike Butler, CEO of Grasshopper Bank (NY) during the Fintech | Insurtech Generations conference in Charlotte, N.C. Butler is a well-known banking visionary; he turned Radius Bank into a fintech haven before it was sold to LendingClub in February 2021.

During a fireside chat, Butler shared his views on running a tech-forward, innovation-focused bank and how his institution is planning and gearing up for recession events and other potentially challenging headwinds.

Here are a few of the trends and tips from the session that will benefit any tech-focused institution:

VC funding will be tight for a while. Venture capitalists that once looked at a startup’s revenue for investment decisions are keen to focus on the path to profitability. Recent bank failures didn’t help. Entrepreneurs must fine-tune their pitches to lay that out while paying more attention to cost control. Even then, it will be more challenging to get funded.

“There was too much capital chasing solutions,” Butler said. “You will have to be willing to give up a little more of a stake in your company to get a deal done.”

Cultural alignment matters. Grasshopper Bank makes sure the fintechs it works with prioritize the bank’s clients, operate within the bank’s regulatory values, and are on the same page in terms of placing profitability ahead of function.

“We mentor our fintechs because we pick younger ones,” Butler said. “Once you’re a part of our ecosystem, we’re a cheerleader for you.”

Be mindful of the regulatory climate. Make sure your partners know what is necessary to meet compliance requirements. Fintechs must find ways to understand the environment, whether that involves relying on a bank partner or hiring someone with experience. “If you run into a regulatory issue – you’re dead,” Butler shared.

Stay the course. Butler’s institution doesn’t plan to alter its strategy despite rising interest rates and an economic slowdown looming. “We’re a deposit generator aiming to be a disruptor. We’ve always been fairly conservative with credit. The industry is dying for new technology. We just need to pick the right clients.”

Stay focused. Consider concentrating on a handful of projects at any given time. The fundamental product must work, and the customer experience must be outstanding before the bank adds “all the shiny bells and whistles.” The goal is to have a product that meets revenue projections before moving on to the next project. Butler’s team is “willing to fail fast and move on,” he says.

Values matter. For Butler, culture outweighs short-term profit, execution trumps strategy, and passion is prioritized over sheer experience. “When we’re hiring people, I believe most of them can do a lot of different things. If they’re passionate about it, they will get you to the next level.”

The Bottom Line

There are many productive takeaways here that would benefit financial institutions broadly, even if the above items are shared in the context of innovation planning and execution. The team at SRM is keeping close watch on all things operational and tech oriented. We will keep you updated on current trends and findings.

Topics: Fintech, Vendor Contract Negotiation, Bank Vendor Management, Credit Union Vendor Management, Banking-as-a-Service, Real-time payments, Venture Capital

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