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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
What innovations are making their way to the payments space in the U.S.? How will the new FedNow Service impact the current payments infrastructure when it goes online in 2023? What can fintechs do to prepare themselves and get involved with a post-FedNow payments landscape?
This year at FinovateFall, we talked with Bernadette Ksepka, Assistant Vice President and Deputy Head of Product Development with the FedNow Service at the Federal Reserve System. With the launch of the FedNow Service drawing nearer, Ksepka helped put the challenges and opportunities in perspective.
On the promise of the FedNow Service
The Federal Reserve banks are developing an instant payment service for financial institutions of all sizes, across every community in the United States, to be able to offer safe and efficient instant payments to their customers, 24×7, 365 … Recipients of those funds are going to be able to have full access to that funding to be able to better manage their cash flow, to be able to make time-sensitive payments … In the back end, banks are going to be able to settle those transactions instantly instead of (in) hours or days. It will eliminate a lot of the liquidity and credit risk that exists today.
On the impact of FedNow on the payments landscape
The FedNow Service is going to modernize the U.S. payments infrastructure. It is really going to pave the way for a big change in the future of payments. It has been over 40 years since the Federal Reserve introduced a new payments rail, so we are super-excited that the FedNow Service is going to go live in the middle of next year.
On the innovation that FedNow may help unleash
The FedNow platform is use-case agnostic, so the possibilities are really endless. And as we’ve seen demand for instant payments grow, we’ve seen use cases expand and I think there are use cases out there that we are not even thinking about. For example, there’s a lot of energy around early wage access. Imagine an employer that can pay their employees at the end of the shift or at the end of the day instead of every two weeks. That makes that employer that much more competitive, especially in a really tight job market like we have today.
Check out the full interview with the Federal Reserve Systems’ Bernadette Ksepka on FinovateTV.
One of the areas of fintech that has benefitted significantly from the rise of enabling technologies like AI and machine learning is compliance. From reducing the role of manual labor via automation to streamlining complex processes to make rules easier for companies to follow, both regtech firms and compliance teams alike play a major role in ensuring the fintech innovations we enjoy are safe, do what they say they’ll do, and are as available to as many eligible consumers as possible.
We caught up with Sarah Murray, who leads the Deposit Product Team at Compliance Systems. She talked about the impact technology is having on the field of compliance, and discussed the key challenges that Compliance Systems is helping its 1,800 financial institution clients overcome.
How did you get started in fintech? What has led you to where you are today in your career?
Sarah Murray: Before fintech, I was practicing law in private practice, and I just knew I was ready to be out of the courtroom and do something different with my legal career. I started at Compliance Systems eight years ago as a product specialist and counsel; now I am happy to have led the product team for the last five years. I love my job because no two days are the same. I never thought I would spend some days researching legal topics and reviewing regulations, and other days reviewing code and testing software, but I love the challenge each day brings.
Tell us about the work you do for Compliance Systems.
Murray: I lead our deposit product team at Compliance Systems, which consists of attorneys, business analysts, software developers, and quality control specialists who all work toward the common goal of delivering compliant and innovative products to our 1,800 financial institution clients. I love the mixture of technology with the law and getting to keep my legal hat that I went to school for by delivering compliance solutions through technology to our clients.
What are your thoughts on the way technology is helping companies keep up with the changing regulatory environment?
Murray: Overall, I think it’s the job of technology to streamline and simplify, regardless of which industry we’re talking about. In the case of fintech and regulatory compliance, that means automating repetitive and high-risk compliance processes. It also means demystifying regulations where we can for the benefit of the consumers that those regulations are intended to protect.
Our proprietary research engine tool enables us to provide proactive and update-to-date compliance, and our team is constantly monitoring and tracking what is happening in the legal and regulatory spaces in real-time to ensure we can deliver timely compliance solutions to our clients. Our software provides updates through our cloud-hosted solutions, and our compliance safety net tool also provides interactive features that help our clients complete compliant transactions and provide a better level of customer service.
How has this evolved and how do you see it continuing to evolve leading into 2023?
Murray: The market has evolved through financial institutions rethinking compliance and needing to deliver a solution that meets their customers [and] members where they are: on their phones. We deliver compliance in a way that makes sense in a mobile-first environment and develop content with that in mind. This model isn’t necessarily what financial institutions are used to, but it is what customers [and] members strongly prefer: easily navigable, mobile-friendly content.
Financial institutions are telling us they want a single, streamlined approach for a customer, regardless of the channel (e.g. whether it be in branch or online). So, we’ve created a solution that satisfies the requests of both parties. You can open accounts through the same process as you would in a branch location, but on a mobile device with ease.
What challenges are you hearing in conversations with clients? What technologies are resonating most?
Murray: Our Simplicity Mobile, a mobile-first account opening solution, has been highly successful because it has helped address some of the main pain points for our clients. They communicated that they are looking to have a more streamlined, efficient, and consumer-friendly workflow to open accounts and to reduce friction in that process to avoid abandonment. This solution completed that challenge by offering native HTML content that a financial institution can include within their account opening workflow, and by supporting “click to sign” functionality.
Another challenge we are hearing from clients involves their treasury management solutions. Treasury management operations are a vital component of a bank or credit union’s commercial services, but the content needed to properly document this business can require costly outside counsel or consume internal resources that put a strain on operations. Also, financial institutions are looking for a better, more streamlined way to sign up their customers for their treasury services. They don’t want to have to create and maintain separate contracts for each treasury service and are looking to avoid inundating customers with multiple contracts and documents.
Our delivery model ensures that our clients will always be in compliance and our technology delivers the configurability needed for a treasury management solution, as many aren’t looking for a “one size fits all” fix. Our solution helps minimize operational and compliance risks for our clients while also providing a central hub for all compliance-related updates and content within our solution. Furthermore, our solution offers one master services agreement for treasury services to help improve a customer’s enrollment experience.
Are there any tips you would like to share on providing strong leadership in a male-dominated industry?
Murray: A few tips I have are to be passionate about what you do and work with integrity; work hard to deliver what you say you will do when you say you will do it; don’t be afraid to challenge the status quo and be an advocate for yourself and others. A big thing at Compliance Systems is that we believe in reinvesting in our products based on what we have learned from our clients and the industry. I would say it is important to have that mentality yourself as you grow. Learn from mistakes. Learn from what works. Learn from your colleagues and clients. Together as an industry, we can elevate the banking experience for all.
Financial inclusion has been a rising hot topic in the past few years. Providing underserved populations with the tools they need to manage their finances and build their wealth has been a top goal across many banks and fintechs, especially those focused on credit and underwriting.
I recently had the opportunity to speak with Gregory Wright, Executive Vice President and Chief Product Officer at Experian. Wright was a keynote speaker at this year’s FinovateFall event in New York. He offered key takeaways from his keynote, discussed opportunities for banks when it comes to financial inclusion, and talked about how they can prepare and plan to scale their operations.
Key takeaways from his keynote
I talked about innovation in three parts. The first part was about innovation with purpose. I think being mission-driven and wanting to have an impact in the world helps drive not only what you want to do as a business, it helps drive growth and [has an] impact on consumers and who you serve in the communities you live in. And that also can drive employee engagement; they love to work on something that actually has meaning beyond just making money.
The second part is innovation through scale. So, think about platforms. Think about global scale, how we leverage platforms and data, and cloud computing, and modern APIs so that you can innovate faster, get products to the market faster, and really have an impact not only for your business, but for your clients.
And in the third part, we talked about innovation with analytics. We live in this new world where cloud computing, advanced APIs, and modern APIs pull data from multiple data sources. [They are] able to do that in real time with advanced analytics and automating model deployment. We can bring together things that we’ve never been able to bring together before. That enables us to do analytics and credit scoring in ways we’ve never been able to do before.
On how banks and fintechs can leverage data and technology to drive financial inclusion
So, let’s just talk for a minute about conventional credit scoring. Today, the conventional credit scores can score about 81% of the U.S. population. That’s one-fifth that are not being scored or that are credit invisible. With ExperianLift, we can score between 93% to 96% of the U.S. population. That is a step change in performance. And that’s because we use more data, better analytics, bringing it all together in a big data platform and making it live instantly for consumers. So lenders, banks, fintechs– they need to be doing that every day to score more people, drive financial inclusion, and have better business outcomes.
How do we represent consumers in their time of need? There are one-to-two million credit reports pulled every day. These are the most important financial moments in consumers’ lives. We can help represent that. And I know fintechs want to create a consumer experience that is delightful, seamless, digital, easy. And with analytics and big data platforms, they can make that happen. We can help partner with fintechs to use things like Experian Lift, or, even better, Experian Boost, where we’re allowing consumers to come in, connect their bank account, add data to their credit report in real time based on the bills they pay, and improve their credit score before they even apply for something. We’ve worked with a lot of fintechs to figure out how we not only allow consumers to contribute to their credit report and get a better outcome, but also we can help them with better analytics and scores to score more consumers and get to a better outcome. This is not only good for consumers, because they get to a better financial outcome, it’s good for them. They’re scoring more people, getting to “yes” more often, and helping build their business.
What should companies implement now to prepare for future growth?
It comes down to what they’re trying to do and how they want to grow. I really advocate for innovating with purpose. [They should think] about how they want that consumer experience to feel and what that consumer journey is. How do they make it more digital, more seamless? How do they get to “yes” more often?
And again, we’ve talked about the platform capabilities from Experian that can help them. We’ve talked about how we can go from analytics and model development all the way to production through the Ascend platform. Things that normally take nine-to-twelve months to get a new score into market, into production, through compliance, and through their IT queue suddenly, we can do that in one platform from the analytics to deployment in real time. That’s something that any lender, any bank should be doing because it’s going to help get to “yes” faster, deploy better models in real time, pull data sources from not just the credit bureau but from anywhere. That means you can drive better customer outcomes, get to “yes” more often, not add more risk, and eventually build great businesses.
The role of state-based organizations in helping foster fintech innovation in their communities is often overlooked. For years, one such organization, JobsOhio, has helped bring attention to the opportunities available to fintech entrepreneurs throughout the state of Ohio. The private development corporation also works to encourage investment in the state’s most innovative businesses – from advanced manufacturing to insurtech. As remote work has expanded in recent years, more and more founders and professionals have turned from Silicon Valley and New York to cities in states like Ohio to launch new businesses and begin new careers.
This year at FinovateFall we sat down with Ron Rock, Senior Director of Insurance/Insurtech with JobsOhio to talk about the organization’s role in driving fintech innovation in Ohio, and what the Buckeye State has to offer both fintech entrepreneurs and fintech investors.
On the impact of remote work on fintech and financial services
In financial services, it seems like we have the ability to be remote. We’re not a “build a building, fill it full of people” kind of industry. So being able to work remotely is very easy in the financial services space – especially when you’re stretching into some of the tech strategies that we have … On the other side, there are some banks and insurance companies that are quick to get people back into the office. They love the camaraderie. They love the collaboration.
On the rise of Ohio as an fintech innovation hub
We fund three different innovation centers in the state. We have one in Cincinnati, one in Columbus, and one in Cleveland that are being developed right now. There’s a lot of collaboration in the healthcare space, in the true IT space. So, in the financial services space, we think that being close to that innovation is very key. What I’m trying to do is recruit some of those (financial services) companies to utilize those innovation centers, get close to that innovation because, I know it’s kind of corny, but innovation breeds innovation.
On the advantages of launching new fintechs in Ohio
What you have is that you’re close to about two-thirds of the financial services sector in Ohio. So, within a day’s travel you can be anywhere you want to be within the financial services ecosystem in the midwest. What we’re also trying to do is highlight with our venture capitalists that fintech and insurtech is a space that is going to provide some really good ROI. We’ve got a lot of venture capital in the state. When you think of venture capital, you tend to think of Silicon Valley or New York. But we’re trying to get really strong in the state of Ohio, as well.
We are all familiar with the challenge businesses have when it comes to new customers. On the one hand, there is an urge to onboard as many new customers as possible. On the other hand, great care must be taken to block bad actors or, in the case of the lending business, to avoid borrowers who are unlikely to repay their loans.
To help companies manage this tug-of-war, innovators in the credit scoring space have developed new strategies for determining credit-worthiness. These new approaches have moved beyond traditional credit scoring to help lenders reach reliable borrowers who may have thin credit histories – or even no significant, traditional credit history at all.
VantageScore is one such innovator. This year at FinovateFall, we caught up with Rikard Bandebo, VantageScore Executive Vice President and Chief Product Officer to talk about the company’s approach to credit scoring, how it differs from traditional credit scoring methods, and how fintechs can leverage VantageScore’s technology discover more “newly lendable” customers.
On making credit scoring more accurate and more inclusive
We went back to the drawing board in a way to look at what we could do to make these models much more accurate and inclusive. In doing so we started looking at ways we could look at the data on the credit file. We began using what’s called trended data and found, in doing so, we were able to improve the accuracy of the model significantly. It’s probably one of the most accurate, if not the most accurate, generic model that’s been widely adopted.
Secondly, we also found that by using this type of data we got much more consistent scores for consumers over time. There’s nothing quite as frustrating for consumers and lenders (than) when their scores go up and down a lot over time. So this provides a much smoother transition throughout a consumer’s history.
And the third piece is that we were able to massively improve our inclusion with this latest model. We score about 37 million more consumers than traditional generic models that are out there – out of which more than 10 million are above 620.
On transitioning to VantageScore from other credit scoring providers.
First and foremost, we are a very transparent credit scoring company. We provide a lot of transparency into how our models work (and) what impacts different activities have on our models. We also have built out great support services around migration and also around governance. We do a lot to make it as easy as possible for both fintechs and lenders to make a transition.
On VantageScore’s reputation in the capital markets and among ratings agencies.
We recently had FTI Consulting conduct a study where they went out and interviewed and tried to understand what the appetite was like in the broader market, what they were looking for. One of the common feedbacks they found was that, like other markets, they’re looking for more competition, and they’re looking for the best models that they can use to understand the impact of different types of consumers on risk.
We’ve actually seen a big uptake in VantageScore being used in general, and we’re seeing now a growing appetite in the securitization markets. We’ve seen some very large lenders transition to now offering their securities based on VantageScore.
If you had 6 minutes to talk with Alexa Von Tobel about all things fintech, what questions would you ask?
For those new to the fintech industry, let me fill you in. Alexa is the Founder and Managing Partner of Inspired Capital and was the Founder and CEO of LearnVest, a wealth management platform she sold to Northwestern Mutual for $250 million in 2018. She is also the author of Financially Fearless and Financially Forward. All this is to say, Von Tobel is a long-standing expert in the fintech industry.
I was fortunate enough to have the opportunity to chat with Von Tobel at FinovateFall last month. Here are some of the highlights of our conversation.
Dealflow in fintech has changed a lot this year. When I asked Von Tobel what we can expect moving forward, she said that the fintech industry is full of dry powder. She said to ignore the spike in funding that has occurred in the past couple of years, and instead look forward to the future. “This is when the best builders come out,” she said. “When times get tough is when you see resilient, committed founders saying that they want to build a business. I want to meet those founders.” In fact, Von Tobel is excited about the downturn because it will bring out the mission-oriented builders and founders that are seeking to fix the big gaps in the industry.
In our interview, we also looked at retirement. According to Von Tobel, retirement looks different today, thanks in part to the gig economy. Many people are looking to leave their full time job to work in a more flexible environment that allows them to choose how frequently to work. On the flip side, young people are also seeking more flexibility in their working environment, and because they are not working the traditional nine to five career, they need solutions to save for their retirement that fit this unique need.
Von Tobel also shared the top trends she expects to see rise in the next few years and offered up advice for founders of mid-to-late stage companies who are having difficulty finding VC funding in today’s environment.
From Open Banking to Embedded Finance, there are more ways than ever for financial institutions and financial services providers to embrace digital technology and bring better, more personalized, and easier to use financial products to market.
One company that is playing a role in helping businesses make the most of the latest innovations in financial technology is ASA. The company, headquartered in Utah and making its Finovate debut last year at FinovateFall, facilitates collaborations between financial institutions and fintechs. An embedded solution, ASA’s technology helps community banks and credit unions offer their customers the same quality of innovative digital services offered by their larger rivals.
We caught up with Lisa Gold Schier, Chief Strategy Officer with ASA, to talk about the opportunity of collaborative banking, how to make bank/fintech partnerships work, and what financial institutions are focused on right now.
Tell me about your time in the industry and your new role at ASA. Why did you make the switch from banking to fintech?
Lisa Gold Schier: I started my financial services career with a bank, then worked with banks and fintechs. However, I had never worked directly for a fintech. Prior to joining ASA, I served as a leader at the American Bankers Association (ABA), where I led product evaluation and served as a strategic advisor to bankers, technology providers, and consultants across areas such as technology trends, digital transformation, and the customer experience. I helped establish and spearhead the only industry committee focused on guiding strategic direction for industry innovation with an emphasis on bank/technology partnerships and core processor engagement.
I evaluated hundreds of fintech solutions during my years at ABA. When I discovered ASA, I knew it was something unique. I realized ASA’s technology and framework changes and improves how financial institutions, fintechs, and customers access technology and work together. By joining the team, I help financial institutions and fintechs meet the needs of their account holders. I am now Chief Strategy Officer at ASA, driving the strategy of collaborative banking and creating a clear path to innovation, scale, and customer financial empowerment through embedded fintech.
Who is ASA and what is collaborative banking? What makes it different than Open Banking or Banking as a Service?
Schier: While OpenBanking and Banking as a Service each have their place in the market, challenges exist with each. Banking as a Service requires fintechs to jump through regulatory hoops and open banking puts banks and fintechs against each other in competition for customers’ finances. Collaborative banking, on the other hand, is a model that allows financial institutions and fintechs to work together, sharing revenue and business opportunities. Collaborative banking takes the spirit of open banking and mitigates the pitfalls, allowing institutions and fintechs to partner in a mutually beneficial way by removing the regulatory risk traditionally associated with partnerships.
ASA, the pioneer of collaborative banking, is an embedded fintech solution that connects financial institutions with customer-facing fintechs in a secure, compliant, and easy to implement marketplace, powering growth and opportunity for all. Account holders select and instantly download the apps that meet their individual needs, and link their accounts without giving the fintech access to any personal information. With ASA and collaborative banking, financial institutions are the hub of financial choice, maintaining the account holder relationship and providing financial empowerment through individualized choice.
Lisa Gold Schier introducing ASA’s demo at FinovateFall 2022 in New York.
What challenges have traditionally made bank/fintech partnerships difficult, and how is the ASA model helping to overcome them?
Schier: There are many challenges, some of the largest include developing an innovation strategy and the team to implement and follow through, researching and vetting all the fintechs and determining which ones will solve the majority of customers’ needs, contracts, core integrations, and balancing innovation with liability and risk. These roadblocks can be especially challenging for community institutions, who lack the large tech budgets of regional and national players.
ASA addresses these issues by acting as a single integration point between financial institutions and fintechs, either through the institution’s core, online provider, or data aggregator. Fintechs never interface with institution’s core, and ASA normalizes, tokenizes, and anonymizes customer PII data, ensuring fintechs can’t access personal accountholder data.
By solving the one-to-one integration pain point, ASA is enabling personalization at scale by allowing customers to choose and download the niche apps they crave without diluting the relationship with the bank or credit union. ASA creates a trusted closed network between financial institutions and fintechs, making partnerships easier, more affordable, and more secure than ever before.
How do you mentor and support women in the industry?
Schier: I strongly believe in having diverse views around the table, and part of doing so means proactively seeking out those different perspectives. This often looks like creating networks, whether within my organization or within the industry, and then supporting each other. It’s important to foster relationships with junior and senior women and share advice and insights.
I also support women through social media and speaking opportunities, looking at and creating diversity in promotional and advertising materials. It’s disappointing to see panels and conference sessions that lack diversity. So, when I am working with conference coordinators, I make it a priority to seek diverse representation, which includes recommending industry leaders and women that may not be tied in with the conference circuit. This also includes working with and supporting diverse communities. Since so many have supported me, I want to continue to give back to the industry.
What is top of mind for financial institutions and fintechs now and over the next 12 months?
Schier: To quote Ron Shevlin, our industry is at a hard fork in the road, and it’s critical for banks and credit unions to move toward the collaborative future of banking. Doing so will enable them to keep up with all of the new technology apps, grow business, and remain relevant. Financial institutions and fintechs that embrace embedded fintech and lean into secure consumer choice, providing consumers with more authority over who has access to their data and under what circumstances, will gain a strong competitive advantage. Moving forward, financial institutions and fintechs should prepare to embrace self-sovereign identities more fully, enabling consumer ownership of their data in new, innovative ways.
Customers increasingly need easier, quicker access to a range of financial education and wellness resources, especially given current market volatility. Those financial institutions that proactively offer more choice, providing customers with simpler, more secure, wider access to the tools needed to develop their financial health and education, will be well positioned to promote financial empowerment and equity.
At FinovateFall earlier this month, I sat down with author Vivek Bedi who delivered a keynote presentation later that week, to gain some insights on the customer experience. Specifically, Bedi discussed how organizations can shift from a product focus to a customer focus.
See his answer below and watch the video in its entirety for more on how business leaders can make smart decisions and how the financial services industry can keep up with a continuously changing world.
We always talk about it, right? How do we actually do it? Being in product for 20 years, I’ve realized, “geez, the customer is so important.” And there are a few things I’m going to talk about tomorrow.
The first is how do we become customer obsessed? I know we say that term a lot, but how do we actually make that happen in practicality…. Nine out of ten times, we’re not even using our own product day in and day out. Somebody else is. So how do we become in their shoes? So it’s really important– when I say customer obsession– is how do we really become the customer; feel their challenges, feel their pains, and feel their struggle.
The second area [I’m going to focus on] is that all customers’ feedback matters. It is so easy for us to gravitate towards “the good.” The customers that are our cheerleaders saying that we’re doing a great job. What about the naysayers? I actually found myself obsessing over time on folks that don’t like my product. Why don’t they like it? Are they just grumpy, or is there something there that I’m missing? The point is really obsessing about all different parts of the product lifecycle.
To watch more video interviews from FinovateFall, check out FinovateTV on YouTube. And whether you were at the event in person or not, check out the highlights below:
This week, we take a look at more of the fintech entrepreneurs, analysts, and experts who will share their knowledge and insights into the fintech industry at FinovateFall next month.
Day One will feature Joe Lichtenberg, Global Head of Product and Industry Marketing for Intersystems, with his Mastermind Keynote address: How Next Generation Architectures Empower Financial Services Firms with Trusted Business Insights. Lichtenberg’s morning presentation will introduce a new architectural approach that is providing business decision makers with a consolidated, accurate, and real-time view of their business.
Personetics President of the Americas Jody Bhagat will deliver a Mastermind Keynote: How Mid-Market Banks Can Find Their Sweet Spot with Digital Plus Human Interactions in the afternoon of Day One. Bhagat will discuss how mid-market banks can evolve their relationship models to do more of what they do best: supporting customers with advanced money management capabilities and Digital Plus Human interactions.
VantageScore EVP and Chief Product Officer Rikard Bandebo will deliver a Mastermind Keynote in the afternoon of Day Two of FinovateFall. In a presentation titled Leveraging Data Analytics to Drive Financial Inclusion, Bandebo will talk about new tools and analytic strategies to discover not just newly scoreable consumers, but newly lendable consumers, as well.
Day Three of FinovateFall will feature a Mastermind Keynote during the Payments Stream. Tom Ward, Partner with Sidley Austin LLP and recent CFPB Enforcement Director, will deliver an address titled The CFPB in the Biden Administration – Enforcement and Regulatory Priorities for Fintechs in 2022 and Beyond. Ward’s presentation will explain the CFPB’s enforcement priorities as they relate to fintech and the organization’s current focus within the industry.
Co-founder and Chief Impact Officer for Symend Tiffany Kaminsky will deliver a Mastermind Keynote during the Customer Experience Stream on Day Three. Kaminsky’s presentation – Upping the Ante: Using the Science of Decision-Making for Effective Customer Engagement – will help businesses leverage behavioral science to better engage with customers and hyper-personalize customer outreach efforts.
Our Artificial Intelligence Stream on Day Three will feature a Mastermind Keynote from Kore.ai SVP of Marketing Michael Kropidlowski. In his address – Creating Extraordinary Customer and Employee Experiences for the Banking World – Kropidlowski will show how conversational AI is revolutionizing the customer experience in banking.
Visit our FinovateFall 2022 hub today and reserve your seat. Register by September 2nd and take advantage of early-bird savings!
What is venture capital doing to help promote fintech innovators who come from underrepresented groups and communities?
We caught up with Elizabeth McCluskey, Director of The Discovery Fund at CMFG Ventures, to talk about her work in supporting underrepresented entrepreneurs that are building solutions to drive financial inclusion.
We discussed her own extensive experience in financial services, working in both investment banking and wealth management before moving to venture capital. We also learned why she believes it is important to invest in female founders and founders from communities that are underserved by traditional financial institutions.
Why did you decide to transition from investment banking and wealth management to venture capital? What do you enjoy about working at a venture capital firm?
ElizabethMcCluskey: Investment banking is transactional. I enjoyed being part of transformational deals for companies but missed being there for the long-term impact. When I pivoted to wealth management, I was able to develop more longevity in client relationships, but the investments were focused on public equities with which I had minimal connection. These experiences led me to find the ideal balance in venture capital. Now I can build more intimate relationships with portfolio companies and invest in people and ideas that are meaningful and important to me. It brings joy and satisfaction to support their long-term growth and success.
Tell me more about your current role at CMFG Ventures and the Discovery Fund.
McCluskey:CMFG Ventures is the venture capital arm of CUNA Mutual Group. CMFG Ventures invests in fintechs to help financial institutions grow and provide a brighter financial future for all. The firm adds value to fintechs by leveraging its well-established network of over 6,000 financial institutions and suite of complimentary technology solutions. Since 2016, CMFG Ventures has invested in nearly 50 fintech companies and its Discovery Fund has invested in 14 additional early-stage companies led by BIPOC, LGBTQ+, and women founders.
I am the director of the Discovery Fund. The Discovery Fund was created to support underrepresented entrepreneurs who are building solutions for financial inclusion. We plan to invest $15 million over the next three years in early-stage fintech companies. Through my role, I’m able to see the full scope of venture capital investing, including but not limited to:
Sourcing deals and meeting entrepreneurs
Conducting due diligence
Negotiating the terms of the deal
Providing long-term support for entrepreneurs’ journeys by helping them scale, network, and find the resources they need to continue to succeed.
Why is it important to invest in diverse founders, especially women-led businesses? And what qualities you look for when investing in these companies?
McCluskey: Women entrepreneurs receive less than 3% of venture capital funding. This staggering number demands that we take a step back and focus on supporting diverse founders, especially women-led businesses, to improve equity in the venture capital space. This is not just the right thing to do – it’s good business. A 2018 BCG study concluded that women-founded businesses yielded two times as much revenue per dollar invested as those founded by men.
Women and diverse founders who have been historically underserved by traditional financial services are working hard to create the financial inclusion they wish they had. We are investing in entrepreneurs like them who are deeply connected to the problems they’re solving. Empowering underrepresented leaders is already creating new opportunities for liquidity management, wealth management, credit access, asset protection, and more.
Can you share more about the women-led businesses that CMFG Ventures invests in and supports? How are they helping make the financial services industry more inclusive?
McCluskey: CMFG Ventures has made investments in multiple women-led companies, such as The Beans, Climb, Caribou, and Frich to help the financial services industry become more inclusive.
The Beans simplifies the path to financial balance through evidence-based design and cutting-edge technology, so consumers stress less about money and focus on what they love.
Climb is a student lending and payments platform intended to make career education more affordable and accessible.
Caribou enables financial advisers to engage their clients in healthcare planning to support life transitions and build stronger financial futures.
Frich makes money social. It helps Gen Z develop better financial habits leveraging the power of community and benchmarking.
These female-driven fintechs are transforming the financial services space and improving the financial lives of everyday Americans.
What advice do you typically share with women founders? What about those looking to break into the VC space?
McCluskey: I would give the same advice to women founders as I do with men: always ask for feedback, especially to better understand why someone is telling them “no”. Founders who send updates over time allow me to track their progress, including growth and consistency of their business plans. In several cases, I’ve ended up investing in companies that I passed on in earlier rounds. And even if someone says “no” to doing business together, they can still be a valuable ally. Attempt to stay in touch and leverage their networks. People are often willing to share their connections and provide valuable guidance.
As for those looking to break into the VC space, I believe it is slowly becoming more inclusive and representative, yet it is still a very network-based profession. Similar to my advice for entrepreneurs, start with one person you know (or cold outreach via alumni networks, common interest groups, etc.). From there, ask every person you talk to for an introduction to at least one other person. Focus on growing your network with the goal of building genuine relationships, not necessarily getting a job right away. This is a long-term investment in your career.
We’re more than halfway through the 2022, what do you predict for the rest of the year?
McCluskey: After record levels of investments in 2021, we all knew things had to cool off. However, I believe the pace at which this has happened surprised VCs and entrepreneurs alike.
In fact, startup funding has fallen by 23% over the last 3 months, bringing us back to 2019 levels. For many, it probably feels like the sky is falling, but there is still a significant amount of money in circulation. Venture capitalists today, and by extension founders, are more focused on “real” metrics versus vanity metrics when deciding which companies to fund. The companies that will do well in the second half of the year will have measurable revenues, not just wait lists, and will be managing costs and runway to drive profitability, not endless cash burn.
Having worked in the fintech industry for four years, Kristiane Mandraki has developed a passion for emerging technology and has seen ebbs and flows of success and failure in the industry. Mandraki is currently the Director of Business Development and Marketing at Praxent, a 22-year old fintech experience design and development firm that helps financial companies succeed in their digital transformation efforts.
We recently spoke with Mandraki on some of the best practices in customer experience, digital transformation, and Web 3; as well as top trends she’s anticipating in the next year.
When it comes to customer experience, what are some of the top mistakes you’ve seen banks and fintechs make, and how can they avoid them?
Kristiane Mandraki: Banks and fintechs often make the mistake of trying to be all things for all people, which only leads to exhaustive mediocrity. Instead, it’s critical to pick a focus, your North Star. Narrowing in on a main priority or differentiator allows financial services providers to prioritize and innovate, setting the stage to truly excel at something instead of being average at everything.
Another mistake we often see banks make is implementing off-the-shelf technology without viewing the experience through the holistic lens of the customer’s journey. We see this often in account opening or loan origination experiences where the customer’s journey starts on the website and ends on the fintech product. It’s important to carefully consider the experience as part of the bank’s brand experience and ensure it’s configured in a user-friendly way. There are many opportunities to differentiate the brand by prioritizing the website and product configuration as a critical component of the digital experience which often requires UX/UI expertise.
What advice do you have for banks navigating this era that’s stuck between digital transformation and Web 3?
Mandraki: Some emerging technologies are fairly polarizing, like Bitcoin. You have the optimists and then those who see the headlines and are quick to write it off. What can’t be ignored is that blockchain technology unlocks much more than an asset class. It has created another sphere like the Internet.
The industry is currently in a transitionary period, or Web 2.5; we’re starting to evolve beyond Web 2.0 but Web 3.0 isn’t quite a mainstream reality. We’re facing a major user experience challenge, which is a huge opportunity for innovation.
There is a need to bridge the gap between banks and cryptocurrencies so institutions can offer these products in a way that’s intuitive and user-centric. No matter where bankers stand on the debate, they must educate themselves and remain open to how they might be able to leverage emerging technologies moving forward. Savvy investors are strongly considering digital assets within their wealth portfolios. In order to build trust with those clients, financial advisors in banks and credit unions must develop a strong understanding of the space to advise them responsibly.
I hope women in particular take the opportunity to help shape this new financial system to be more inclusive, especially since they weren’t in a position to do so when traditional financial systems were created.
How can banks offer digital services while maintaining human touch?
Mandraki: A primary issue is that for too long, banks have relied on experiences that are system-centric, ultimately forcing customers to jump through several hurdles to satisfy internal IT systems. This typically results in a process that is cumbersome, requiring customers to rekey information and leaving no room for human empathy.
Community financial institutions excel in customer-intimacy, as they move much of their customer interaction to the digital space, it’s critical they offer experiences that are human-centric.
This is where exercises and tools like a customer journey map, envisioning the customer journey in the context of use, provide significant value. Once the work is done to identify points of delight and frustration within the customer journey, the proper prioritization and investments can be put in place to overhaul the experience with the customer at the center.
What are the top trends you’ve seen so far this year, and what’s coming next year?
Mandraki: Going back to common mistakes we see in financial services, an exciting trend is that many banks and credit unions are starting to pay much closer attention to their ‘digital front doors’ or website experience. Strategic institutions have started to realize that a marketing department of one or two people, usually without any user experience or design background, is simply not enough of a resource to modernize and maintain their websites. Having a modern website that shares relevant information and options with intuitive navigation is just as important as the money being spent on things like modernizing loan origination systems or account opening tools.
We are also seeing many more financial services providers striving to identify a niche when it comes to investing and wealth management. There is a massive opportunity to reach and serve this group of Millennials and Gen Z that soon stand to inherit significant wealth but who have so far been hesitant to engage traditional financial advisors.
Launched in 2019, Piermont Bank aims to blend the best of modern banking and agile fintech. Piermont Bank’s peer banking approach provides customers with technology-enabled, human-delivered solutions, opting for dedicated bankers over “1-800 numbers or chatbots.”
Last month, Piermont Bank celebrated three years of innovation. The woman-founded and entrepreneur-led financial institution currently has more than $420 million in total assets, and offers an end-to-end, digital banking-as-a-service platform with more than 40 fintech clients already onboard. More than 50% of Piermont’s loans since inception have been made to low- and moderate-income communities, as well as women- and minority-owned businesses.
The genesis of building Piermont was actually really simple. A lot of entrepreneurs would tell you they had this grand vision. For me, it was actually just very two practical reasons. The first was seeing the impact and the speed of impact that fintechs were making on consumer banking … The second reason was: I’ve been in banking for 26, 27 years. (And I’ve seen) the same pain points repeatedly from both the customer (side) as well as internally as an operator … So basically I said, “Okay if I could start with a blank slate, how would I build this? How would I build a fully digital-native, totally tech-enabled bank to do commercial banking faster and more efficiently?
On the evolution of financial services in recent years
My industry, historically, doesn’t change. It doesn’t go that fast. These days, I say that if the CEO is still working off their three-year strategic plan, if it’s in their third year, the board should fire that person. I mean, are you still even relevant in terms of your products (or) the way that you’re delivering these products? So I think the biggest change is just the speed, the speed of change, the speed of innovation.
I was taught and it’s still true banking is a risk management business. So it’s a little bit counter-intuitive if you think about it, this so-called “innovation.” But you absolutely can innovate in a risk management business.
On the advancement of women into leadership roles in financial services
I find myself able to make the biggest impact in the day-to-day: hiring based truly on skill sets and meritocracy, being gender-blind, age-blind … I know that sounds weird but, as an executive, as somebody who is doing the hiring, as somebody who’s doing the promotion, if I can just say, is this person the best person for the job? That’s more than half the game. I know that doesn’t sound very inspiring or trailblazing, but it is actually the day-to-day that makes a huge difference. Empower women, give them the job opportunity, give them the opportunity to rise to the occasion. That’s how we get there.
