What Investors Want to Know About Your Tech Strategy

In a recent conversation with a Colorado banker about tech strategies, he mentioned a looming investor meeting. He was putting together an overview and was trying to decide the best way to proceed.

"These are the people who provide the underlying support for what we're doing, so I want to make sure they know the road we're on will provide the value they want," he told me.That comment made me think about how financial institutions communicate their innovation strategies to various constituencies.

What information would they want to see?

What questions would they have?

How do you prepare to address their concerns and provide answers and clarity?

These questions apply to many endeavors, including Banking-as-a-Service (BaaS), cryptocurrency, and fintech investments. I reached out to a handful of independent bank investors to find the answers.

Here is a simplified overview of what they shared, including quotes and commentary from the investors. Some of their responses follow in italics.

1. Be good at the basics. Make sure your institution is doing what it needs to do when gathering deposits, making loans, and controlling expenses. Investors made it clear that if FIs struggle in any of these areas, they will face skepticism when pitching a tech-forward strategy.
   
   "If a bank isn't generating decent returns, why should we trust them with a new strategy? I'd be concerned that they're chasing an unproven dream."
2. Do your homework. Investors like numbers, and they value a thoughtful approach. Be prepared to discuss expenses and how the ROI on a tech strategy will be superior to the current course of action. Be sure to understand the risks involved.
    
   "Show me the math and how you're getting to the result. Show me your decision tree."
3. How necessary is the strategy? Investors distinguish between projects required to be competitive and those that create competitive advantages. More commoditized efforts should require less investment than those that drive considerable value. This doesn't mean shortchanging a necessary upgrade; be prepared to substantiate the expenditure when meeting with key shareholders.
    
   "Do you have a particular edge, or are you simply doing something because everyone else is doing it?"
4. Details matter. Be prepared to get into the weeds with some stakeholders. Who will lead the project? How will compliance requirements such as BSA and fraud be managed? What do the regulators think? For cryptocurrency, have a plan for addressing issues tied to liquidity and other potential liabilities.
    
   "Banking is a technology-driven business, but there are a lot of shiny new things that can distract management teams. Avoid the herd mentality because a lot of this stuff can be a bit frothy."
5. Prepare to listen. Investors, especially those with FI credentials, will undoubtedly want to weigh in on your strategy. They can become an integral part of the fintech ecosystem. The best-case scenario is that they'll share thoughts that benefit the plan. At the very least, they'll feel heard.

The Bottom Line

Investors provide a bank's lifeblood, while membership is critical for a credit union's success. Helping each group understand what you want to accomplish – and how you plan to cross the finish line – should make your transition to tech innovation a smoother process.

Understanding the ins and outs of your strategy and the competitive landscape before having discussions with investors is critical.