Bank-fintech collaboration movement grows with Live Oak-First Data venture

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Live Oak Bancshares in Wilmington, N.C., is eager to continue its run of successful technology ventures.

The $2.1 billion-asset company, which formed and spun off nCino, a cloud-based software firm that helps banks manage loans and operations, is moving forward with Apiture, a open API banking platform its bank recently created with First Data.

Partnerships between banks and tech firms are likely to continue because each side has complementary strengths, industry experts said. But there are also risks to these deals, and most partnerships will likely be less involved than the Live Oak-First Data marriage.

“We’re seeing banks around the world partner with fintech companies,” said David Albertazzi, a senior analyst at Aite Group. “When you look at those trends and the weaknesses of both parties, it is a pretty complementary relationship.”

The partnership shows that, in the race for to give customers the latest technology, some banks aren’t willing to sit around and wait. Instead, they want to have a hand in developing it.

Apiture — the first three letters in the name are a nod to APIs, for application programming interfaces — represents “where the industry is going,” said Neil Underwood, Live Oak's president. The industry has been focused on using APIs to connect in a safe and secure manner with other applications, such as Amazon’s Alexa or person-to-person payment technology.

“It has become cool to talk about how applications get access to a bank’s information,” Underwood said. “You’re talking about transaction data, how something like robo advisers or Mint would gain access to a bank’s information. A lot of industry churn is around who the data belongs to and how you access it securely.”

First Data and Live Oak have been familiar with each other for a while. Live Oak was drawn to First Data’s strong leadership team and innovative products, such as Clover. First Data appreciated Live Oak’s experience as a digital-only bank that has created some of its own technology. Apiture is a joint venture, with Live Oak and First Data each owning a 50% stake.

“We came to realize we had a similar vision on how the market will evolve,” said Chris Cox, Apiture’s president and First Data’s former head of digital banking. “Our visions were very well aligned,”

While the partnership is likely more ambitious than what most banks would be comfortable doing, it is likely that financial institutions will look for ways to work with fintech companies, experts said. There are several ways banks can do that, said Daniel Latimore, senior vice president at Celent.

KeyCorp in Cleveland had an exclusive relationship with HelloWallet before it bought the personal finance management product. Eastern Bank earlier this year spun off Numerated Growth Technologies, which lets banks make small-business lending decisions quickly.

A relationship can be as simple as transactional partnerships between customers and vendors, Latimore said. Then there can also be more of an adviser-client relationship that is “more of a win-win” followed by a formalized joint venture like the one created by Live Oak and First Data.

“Clearly over the last several years we’ve seen much more of an acceptance that banks will work with fintech,” Latimore said.

Banks and fintech firms may decide to collaborate because they have matching skills. For instance, banks are experienced with the regulatory landscape and have a known brand and client base. Fintech companies are often nimbler and are more willing to innovate and experiment, industry experts said.

“These partnerships are the way to go,” said Chip MacDonald, a lawyer at Jones Day. “The banks need the technology and the technology people need the banks and their customers. There’s a lot of motivation for the two sides to get together.”

Still, challenges exist. It is likely that fintech firms will become increasingly regulated. Banks and fintech companies also have to be innovative to stay up to date with changing user experiences.

Such interactions “are becoming conversations that mimic talking with a real human regardless of the channels,” Albertazzi said.

“I think some of the risk is that potential goals and business models may not align,” Albertazzi said. “The customer journey is becoming complex and I think that is a new challenge for everyone.”

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