JJ Hornblass 0:01
Hi, everyone. I’m JJ Hornblass and welcome to FinTech unfiltered from Bank innovation, the leading digital news service on banking and FinTech. This is our weekly wrap for what’s happening in banking innovation for the week of august 17 2020. I want to thank our bank innovation advertisers before we continue mambu blend and cu ny for their support. So thank you to them. And I am happy to be joined by Bianca Chan from Bank innovation and Jon Dobson from PayRecs a one of the founders of PayRecs an international payments FinTech startup. Welcome to you both. It is Friday, August 21. This was a week mark by Joe Biden’s acceptance of the democratic party nomination for president and as well as

Unexpected and unexpected increase in unemployment in the unemployment rate this week, as numbers of those filing for unemployment jumped over 1.1 million yet again. So some disappointing news On the economic front.

But on the banking side, we took a look at an area of banking innovation that seems to be lagging expectations or hopes and that’s in in regards to open banking

in the US financial services market. Um, so Bianca, maybe you could start by giving us some background on on what we found on the state of open banking today in the US, where some of the shortcomings and why there is still no real regulatory framework for innovation.

Bianca Chan 2:00
Forcing open banking in the US. Yeah, sure. So we took a look at some of the regulations and policies around open banking and found that part of the Dodd Frank act,

section 1033 says that, you know, consumers should have the right to share and access their financial data. So it’s a little bit confusing. There’s a bit of a gray area, because even though it was enacted, you know, 10 years ago, there’s still no mat, there’s still no policy or law that kind of mandates that financial institutions need to give consumers the access, it’s still a gray area. And what we’ve seen in the us is that it’s a largely market driven kind of approach to regulation, which basically means that the industry players, prompted by I guess, customer preference, want to provide this type of service, but there’s no regulation that kind of mandates, you know, what kind of information it needs to be shared or what what it covers.

And you know who it shared with. So you’re seeing in the industry, a lot of a lot of banks actually, that we spoke to are really down with open banking, they want it and they want to leverage that FinTech ecosystem. But since there’s no regulation to kind of mandate, what the practice should look like, for everyone, you’re seeing this kind of varied approach where some banks will share their their consumers financial data with other third parties, but not with others.

And the other kind of interesting thing to think about here is banks are already such a regulated space that he existing kind of consumer data privacy and regulations around that are likely to kind of already cover consumer privacy concerns. And so something you know, there’s there’s no point in extra regulations because all of our concerns are already covered. So it just sounds like a huge gray area. So john, so maybe before getting into kind of happy

JJ Hornblass 4:00
Some of your views on open banking, maybe start by telling us a little bit about pay racks and kind of how a open architecture

Jon Dobson 4:12
plays into the play racks. Strategy and, and and technology approach. Yeah. So thanks so much for for having me today. So, you know, at payrexx, our goal is to create innovative solutions that that help banks provide a better customer experience, right reduced costs on their end, both in terms of technology, spend an operational cost, and then also generate new streams of revenue from products that they otherwise wouldn’t be able to develop on their own. So that’s a little bit about what we do and how we fit with banks. You know, and I think what we see is there are a lot of banks out there that have, you know, that want to bring more services to their customers. They simply don’t have the budget or the resources to do that.

And so we believe that, you know, partnering with fintax provides a great opportunity for them to bring a tremendous customer experience with new tools and services, without the bank having to expend a ton of cash to dedicate resources to build new solutions on their own, they can partner with people that have dedicated their entire company to creating those those solutions in a great customer experience for their customers.

JJ Hornblass 5:25
So when you hear about these shortcomings in the open banking, either regulatory infrastructure, or or kind of the the barriers to that, oh, I mean, if you were to divine a regulatory infrastructure, and I know john, you could do it. You know, what would that look like? I mean, like, would it look like the the framework that they have in, in Europe in the sense that that Banks are forced, you know, really they have been forced into it? Or, or is there some other? I mean, what would from your your I mean, you’ve worked at Bank in bank? Yeah. Kind of brilliance.

Jon Dobson 6:20
Yeah. So if I’m given the opportunity to divine, you know, regulatory structures, I would say I used my wish with the genie very poorly. But, but if I were given that opportunity, you know, it’s difficult because I know the bank struggle, you know, with a laundry list of things that they need to do to meet the regulatory requirements. And that’s true, whether it’s a community bank and a, your credit union or it’s, you know, Wells Fargo and JP Morgan and BMA, they’re spending tremendous amount of resources, trying to keep up with the current, you know, regulatory environment.

Challenges without,

without some of those regulations, it’s easy for them to say we really like this idea, we’ll get to it next year. And so with without their hand being forced a little bit, I think it’s always gonna lag. And that gives the opportunity for entrepreneurs like myself to go to them and say, Wait, there’s real value in doing this now, and we can show you that value right away. So before you make the investment in creating the structure, that that fintechs can come in, and partner and gain access to this data, we can show you ways that this can benefit your bank, either by reducing operational expenses, you know, eliminating manual processes, or driving a better experience from your customers to keep them away from the larger institutions that that do have the resources to provide these experiences. So, you know, it’s hard to say throw more regulation on the banks because I know they’re drowning in it. Already, and I know they’re trying to keep up financially already with the technology requirements, the regulatory requirements that they currently have. So I feel like it falls on us as the entrepreneur to make a compelling case to them that there is a better way to serve your customer and these partnerships and and pushing towards more, you know, open banking architecture is that way and that’s the way that that you can serve both the customer the best in your, in your bank, your shareholders. And

JJ Hornblass 8:28
so, Bianca, I mean, you saw, there’s definitely, you listen, you hear what john says, and there’s clearly like a delta, right, like so. In other words, you know, the value that john is suggesting is is reasonable, right. That’s a reasonable argument, john, and, and, and, and also, in our reporting, we found that there are financial institutions that are sort of good to go right they want to go So is this a spend issue? Is it Is it a culture issue? If the value argument is there, and and the inclination is there, so why hasn’t there been enough of a meeting of those two drivers that will result in kind of more pervasive open banking opportunities and solutions?

Bianca Chan 9:22
Right. Interesting, because the market driven approach that we’ve had, at least from what we’ve heard from the banks, and you know, the data aggregators and lawyers that we spoke to, is that it’s a customer centric, kind of driven approach, as in that is to say, you know, it’s not the regulators that are enforced, like forcing the banks to pick this up. And I mean, it all it basically just means that everything is being done in the customer’s point of view. And regardless, I mean, despite the fact that the US doesn’t have any kind of mandate that forces open banking, it’s still seen from, from the source that we spoken to, it’s still seen as an innocent Straight leader in open banking practices. So maybe the idea is that the market driven approach is kind of the way to go. And the regulations not necessarily needed.

JJ Hornblass 10:10
I mean, john, do you buy that? Like, here’s, let me let me say it this way, I’ll rephrase it more specifically. So, I mean, I think that there is there has been tension built between the financial institutions and the aggregators that have essentially gone out and said, you know, we can, we can, you know, we can siphon data with customer permission, and that kind of sometimes, you know, puts puts the, the end user of that data at odds with the financial institution, or at least the financial institutions, business model. I mean, is, you know, like this kind of pushback. I mean, have you used Seeing this as well. And do you think that isn’t really customer driven? Or is it more that there is? There is a, you know, friction from, you know, some of the, from these data aggregators, you know, and their behavior over the last several years, I think, I think banks are not natural agents of change. And I think, you know, their first their first responsibility is safety and security. And that is not a responsibility that lends itself to,

Jon Dobson 11:35
to innovation. And so, you know, and also, as we, you know, having worked at two large banks, working with a lot of banks in my new role, you know, innovation is still a difficult, scary thing. And there’s a lot of questions about not just protecting the customer protecting the data, but also protecting the relationship, right. How do we make sure that this doesn’t go from being, you know, our custom To this fintechs customer, right, we need to maintain the value of that relationship. So I think those are all things that the bank wrestles with, you know, I, I think they are not, they are not likely on their own to ever say like, yeah, let’s the majority of banks aren’t likely on their own to have this epiphany, we want to just open up, right? They’re always going to be predisposed to say no, we want to stay very close. We want to, you know, keep our customers close, not give other folks access to that data, not give other folks access to our customers. Because we want that revenue, we want that relationship. If we crack the door for them to go do some other thing with some other provider does that crack the door to the whole relationship leaving, so I think they are naturally predisposed to be very cautious and and sort of hesitant to take part in that. So to to drive real change. It probably does have to be regulatory but you No pay racks. We obviously believe that we can convince bags, that it is in their own best interest to partner with firms like ourselves and to drive solutions that way and that there is a solution that can provide value to them and their customers. Good.

JJ Hornblass 13:15
Let’s change to another topic before we get in real trouble. Innovation spend and FinTech FinTech partnerships, kind of post a coronavirus pandemic shock. So certainly there has been this focus on on partnerships. Um, but is there is there really the the kind of pace of partnerships that would be expected or, you know, what is what has been happening on this kind of postcodes. Big dynamic in terms of innovation and innovation spending Bianca?

Bianca Chan 14:06
Yeah, well, I mean, we have definitely seen, you know, bank big bank partnerships with big tech companies. But that’s no surprise. I mean, that happens all the time. The question in the survey that we ran as part of IMV really was looking at a one to two year kind of time period. So I think it’s kind of hard to tell whether that, you know, 70 or so percent that said that they would be increasing innovation spending that 60 to 70%. That said, they were going to increase or significantly increased FinTech partnerships. It’s kind of hard to gauge that based on just how much time has passed so far. But you’re definitely seeing I mean, when we speak with people in the industry, there’s definitely a change in terms of like, the timeline for how long it takes to develop a product that’s definitely been accelerated. And I think to John’s earlier point, Thanks for looking to spin up these sorts of products and solutions quickly and it’s much faster to do it the FinTech that’s kind of dedicated, you know, their time and life basically to this one particular aspect of banking.

JJ Hornblass 15:14
Sure. What was interesting, john, I mean, Bianca when you, you know, what the BI team found and is, and and I’m kind of extrapolating, it seems that most of the very recent initiatives are tied to mobile application ansmann refinement and so on, and not as much on the payment side now, you know, gross payment volumes in the economy are down so I get that. But still, you know, is what what do you kind of read into that job? I mean, does it support what you’re seeing? But you know, from what we’ve seen most of the current activity, the projects, the near term, short term projects are more kind of mobile app, you know, feature focused. And that goes with usage numbers that are kind of, you know, gone through the roof obviously.

Jon Dobson 16:26
Yeah, I think, I think the banks are trying to catch up to where the market is, and the market shifted so quickly to mobile, and so many banks got left kind of behind with that experience. And now they’re trying to catch up to that and particularly as you look at the large bags, and some of the mobile tools they’ve rolled out or, you know, are really, really good. And so, you know, the market is trying to catch up to that it’s a market driven event. And so the market is trying to catch up to that, you know, in the payment space, in the, you know, work specifically focused on the b2b side, but you know, Think, again, banks tend to be by nature and for good reason, they tend to wait and see what you know, where the trend firmly is before they before they act, and that’s to protect their customers and their fiduciary responsibility. But, you know, we’re starting to see where we bring value is on the payment side. And it’s more on the, you know, we bring a lot of value both to the customer, but also to the bank in streamlining processes. And so that’s where we think there’s a lot of opportunity. Having worked at two large banks, it always shocked me until the day you know, I left my my last large bag, how many processes were manual, right? How many processes? Why isn’t this out the door yet? Oh, it’s waiting for JJ to push the button so it can go out the door, right like that. There’s a person in the bank that does that. So you know, that’s where we try and drive innovation. And, you know, we feel like driving innovate there on the payment side can create both a better experience for the customer and reduce cost dramatically for the bank. So that’s where we feel like we’re starting to see more interest from banks that are more you know, forward leaning and more progressive saying hey, how can we make this a better experience for our customers? At the same time, you know, reduce costs, particularly during work work from home, you know, work from home is probably something that is a net benefit to us it pay racks because we drive a lot of a lot of automation on the back end for our partners,

JJ Hornblass 18:32
have you noticed like if you if you if you kind of take a if you gauge banker sentiments or attitudes even kind of like at a deal level like are the deals that that are coming up now versus pre Coronavirus? You know, how are they different like or Like or if I can frame it, like is that is their ERP? Is that urgency different in any way? Or is it kind of somewhat the same process, the same considerations, the same specifications kind of thing?

Jon Dobson 19:19
So I think the process, I think the process is the same. And it still can be a long cumbersome process with a lot of folks in an organization that need to be involved and need to approve a transaction. So I think the process is probably similar. You know, I think the interest is, is it seems to be as high as ever. And I don’t know if that’s because people have a little more time in their day, you know, they’re not, they’re not rushing all over town with meetings, they’re sitting at their desk. And so maybe they have a little more time in their day to think about some of these things. But we’ve also seen I think what we’ve really seen is a shift from Where what part of our value prop lands with customers, right? So before it might have been more around, hey, we can create a much better experience for your customers with a brand new suite of products. gonna help you retain more customers gonna help you win new customers drive new revenue. Before that may have been the part that stuck more. Now it’s Hey, the back end is totally automated. So a process that today results in hundreds of manual re entries a month or hundreds of phone calls from your ops team to a customer mode now goes to zero. That’s probably the value prop that jumps out to them initially as Okay, that’s really important because we have all these people working from home and we’re trying to maximize resources.

JJ Hornblass 20:47
And that that kind of wasn’t the case before. Just sort of would you blame that on just kind of inertia? Yeah, I mean, I think

Jon Dobson 20:57
you know, I think that it was so thing that people valued. But it wasn’t necessarily the number one thing, right. So maybe of of our value proposition, the order of how they stack those values has shifted a little bit with improving operations, streamlining operations, has moved more to the top of that to the top to the top as they try and you know, just streamline operations, you know, given

JJ Hornblass 21:23
Bianca so what do we have on tap for next week?

Bianca Chan 21:28
Yeah, next week, we’re going to be looking a deep dive on two implications of who wins the election and how that might impact banking and FinTech policy. And obviously, we’ve been following following the huge spike in mobile and online banking adoption. So taking a look at how is that going to impact banks kind of strategy around branches, they still as important as they were before,

JJ Hornblass 21:53
I have no idea.

So john, Thank you so much for being with us. We really appreciate it. Bianca Of course. Thank you. Thank you all for, for for visiting with us. And for listening to FinTech unfiltered, please email us at info at Bank innovation dotnet and follow us on Twitter and LinkedIn. And of course, visit us on bank innovation dotnet we have our bank innovation build conference coming up next month and I hope you’ll check that out at Bank innovation build calm. Thanks so much for joining us and until next time, keep it on filter.

Unknown Speaker 22:37
Thanks, everyone.