Wade Arnold: Coder in the Cornfields

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Wade Arnold leans against the wood veneer bar at Zsavooz, a busy strip mall restaurant filled with pool tables and dart boards off highway 58 in Cedar Falls, Iowa. The 34-year-old head of the banking technology company Banno gestures around the noisy room.

"I have all my internal meetings here," he says. "We call it Banno East."

This 40,000-person city is far from the tech capitals of New York and San Francisco. But it is where, with no acumen for banking at the start, Arnold transformed his company from a web design shop into one of the top financial technology outfits to watch in the coming year.

Roughly four years ago, in a series of lunch meetings at this bar, he negotiated a deal that netted Banno a half-million dollars in investments from local commercial real estate developers.

Now there are nearly 60 programmers, sales people and IT staff; about $4 million in revenue; and almost 400 bank customers.

This former, semi-pro BMX rider is part of a new generation of entrepreneurs trying to capitalize on the growing need for technology at banks.

Today you can tell he's excited. His voice rises at the end of every sentence, his blue eyes wide.

Arnold's tiny company has just landed its biggest get yet: a partnership with ProfitStars, a division of established core banking company Jack Henry (JKHY).

ProfitStars just began offering bill pay and mobile remote deposit capture technology through Banno's Grip - a smartphone app that helps bank customers decide whether to make purchases, without requiring integration with a bank's core system.

And earlier this fall, Banno launched a billpay switching service with Deluxe that gives banks and credit unions the ability to help new customers change banks. The roughly $178-billion-asset SunTrust is piloting that feature as a part of Deluxe's SwitchAgent software.

For Banno, such high-profile partnerships are a stab at legitimacy in an industry so risk-averse that newcomers selling technology are ignored as a matter of course.

"The barrier to entry to [offer] fintech directly to banks is humongous," Arnold says. "It's been a wild past 14 months."

 

BARRIERS TO BANK TECH

Few early-stage companies get as far as Banno, and even fewer last.

Traditionally, banks have wanted everything under their own roof. Executives were hesitant to even rely on proven third parties such as IBM, much less unknowns.

"I don't know if I'd [hire] somebody from Iowa in the first place," jokes Brian Riley, a former bank executive, who is currently a senior research director in the bank cards and retail banking practice at CEB Towergroup.

That, however, has started to change.

Over the past decade, "our world has become so highly interconnected that today, if there is a good idea somewhere in the world, I could be on a plane to get there tonight," says Philip J. Philliou, a payments consultant who evaluates startups nationwide.

Even so, those selling Web services to even the smallest of banks must catalogue every change - not to mention every version, whether it's displayed on a desktop, tablet or other mobile device.

It's a matter of self-preservation. A passel of regulators could, at any time, call on a bank or credit union to produce the rate changes displayed on a mobile app or static Web page at an earlier date.

Many larger banks will flat-out refuse to work with outsiders that don't have millions of dollars in liquidity, simply for liability reasons, Riley says.

And then there's the series of certifications an entrepreneur must pay for and pass, to convince potential customers it's safe to use the startup's services. Yet there is no question where much progress in this industry starts - with people like Arnold.

 

HACKER @ HEART

In the mid-2000s, before working on big banking problems, Arnold was plugging away on open source software, specifically working on a way to push data immediately from a server to a Flash player (Adobe's multimedia platform used to add animation, video, and interactivity to Web pages).

He co-wrote "The Essential Guide to Open Source Flash Development," after so impressing Adobe executives with his work that they hired him to speak at conferences and "evangelize" their software.

In 2007 Arnold joined T8 Design, what is today Banno. He became the lead on a dozen projects for the then two-year-old ad agency, most of them contracts with fast food restaurants.

Arnold was paid in common stock, a move he'd later regret when he realized that T8 was heavily in debt. He eventually approached two real estate developers for help keeping the company afloat and preserving his shares.

What happened instead was a series of drama-filled events in which the previous CEO was forced out and the pair of investors wrote a check for $500,000 directly to the bank (they now own half of Banno) and put Arnold in charge of the new T8 Webware at the beginning of 2008.

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