Collaborators Outnumber Would-Be Disruptors at Fintech Demo Event
Dozens of businesspeople wore hard hats. Yellow caution tape was draped around the event space. The drift was that the 10 fintech startups demonstrating their products would take a figurative wrecking ball to old, inefficient industry processes.
"Fintech is destroying legacy systems and legacy attitudes," declared Jesse Podell, the emcee and managing director of startupbootcamp FinTech New York, bounding on and off the stage in high spirits.
Despite the demolition motif, the lineup at the Wednesday event reflected a recent shift in the fintech world toward collaboration. In the past year, technologists have pivoted from taking on established players to trying to help them run more efficiently.
Startupbootcamp's fintech accelerator in New York boasts an unusually large faculty of 225 mentors, trained to give candid feedback and prepare the class of 10 startups for the real world.March 22
JPMorgan Chase is opening its doors to fintech startups to work with its business lines directly on bank innovations for faster, safer and more cost-efficient operations.July 1
Capital continues to flow freely into financial technology ventures, many of which are repositioning themselves as aspiring partners for banks rather than would-be disruptors.April 21
Five of the 10 graduates from the startupbootcamp accelerator program pitched technology designed to be used by traditional banks. A characteristic example was AlphaPack, which offers banks a "sandbox" for testing fintech partners' software. As part of the 13-week program, startupbootcamp had matched the entrepreneurs with 350 mentors, some from financial institutions like Rabobank, Santander and Deutsche Bank. (The banks were among the program's sponsors.)
"These are some of the cleanest value props I've seen in a while," tweeted Bradley Leimer, head of fintech strategy at Santander U.S.
Some of the young firms, like Seal with its mobile app for legal agreements, offer something that isn't available today. Only a few, mostly purveyors of blockchain technology, truly aim to disrupt facets of banking like lending and alternative asset trading.
Here's a rundown of the presentations.
AlphaPack's product, Sandbox, gives banks a safe place to try out new technologies from fintech partners.
"Imagine you're swimming in a river, you have a 100-pound weight on your shoulders, and you're struggling to keep your head above water," said Ravi Balasubramanian, AlphaPack's CEO. "That's what it feels like to be a business unit leader or innovation leader at a financial institution that's trying to work with fintech startups right now."
The lead weight represents two concerns, he said: security and systems integration, both of which his firm aims to provide. Digital Credit Union in Marlborough, Mass., has already begun piloting it.
Fluent, a startup that began in Kentucky and is migrating east, has a blockchain-based platform for the $6 trillion trade finance space.
"This market is enormous," said David Sutter, chief operating officer and co-founder. "One third of trade in the world uses trade finance."
Yet it's a technological backwater, he said. "The financial and IT systems that support it today are extremely antiquated, largely paper-based and disconnected. It makes them slow, costly and rife with fraud."
Fluent uses distributed ledger technology to automate and streamline settlement, reduce fraud risk, increase transparency and drive automation and asset transfer. The platform is API-driven and includes a payments engine, a supply chain finance platform, a peer-to-peer receivables marketplace, supplier management tools like e-invoicing and purchase order management, and a developer toolkit.
"For banks, this platform is meant to slash back office costs and drive new revenue streams for some of their biggest commercial customers," Sutter said. "For buyers and suppliers, it's meant to be a secure, intuitive and seamless platform for transacting and optimizing working capital."
RepreZen set out to solve a longstanding problem for banks: data integration.
Developer teams at large banks struggle to pull market and reference data from different places, said Ted Epstein, RepreZen's CEO. "All of which weren't built to a common standard, weren't built to work together in a single application," he said. At large banks, he said, data integration accounts for 30% of typical IT spending.
RepreZen provides an API Studio that can be used to create connection points between applications and databases.
"This is not a quick fix, not a Band-Aid," Epstein said. "We work with companies that have a commitment to solving the problem through digital transformation programs or enterprise data governance." This summer, the company worked with Rabobank to integrate loan and facilities data to other systems in a few weeks.
VendorMach provides what it calls an "early warning system" for vendor risk management. The software is designed to monitor banks' vendors for signs of liquidity risk, data breaches and other potential issues.
"We're the smoke detector for supply chain trust," said the firm's CEO, Chaney Ojinnaka. "We can help large enterprises that have thousands of suppliers avoid the overhead and lost money due to manual information updating and compliance auditing." VendorMach is courting retail banks, marketplace lenders and insurance companies.
Visualize Wealth has created white-label software for banks to embed in their mobile apps, to give their customers a view of their investments and an objective sense of how those investments are performing.
"In the '80s, people didn't know what was in their food. It wasn't until nutrition labels came out in the '90s that people could get a clear, consistent understanding of what was in their food," said Benjamin Gross, the firm's CEO.
Similarly, in the $47 trillion investment management industry, "you cannot get a transparent, objective view of what's inside your portfolio. Anybody who's offering you an analysis of your investments is also an asset manager, they're not objective."
CFX has built an online trading platform for private real estate investment trusts, a market the startup pegs at $84 billion, with 1.2 million retail shareholders.
"One problem every investor has, one that stops them investing through a portal is, 'How can I access the cash I've invested if I need it?' " said Jordan Fishfeld, CEO. "The traditional answer has been, 'you can't.' Sponsors would put their hand up and say, 'That's not my problem.' Even if they wanted to help, they were limited to the network of buyers the sponsor or issuer defined or the seller. You didn't have great transaction or historical data around the asset, and then you had to deal with the transaction process itself. This is all very time consuming."
CFX says its platform provides transparent pricing as well as banking, compliance, and document management. Since the start of Startupbootcamp, it's handled one million transactions.
Factury has a blockchain-based lending platform. "The lending industry is filled with fraud and inefficiency at every level," said Arturs Ivanovs, Factury's chief marketing officer. "It's mostly driven by paper-based processes and human labor. Only 7% of this industry is digitized." Distributed ledger technology will be the fundamental infrastructure for the lending industry, he said.
Seal has built mobile payments into its app providing professional agreements.
"Losing money is a problem for the 53 million self-employed people in this country," said Seal's CEO, Oliver Lehtonen. "They lose income because they don't legally protect their work."
token says it's working to make credit card fraud a thing of the past. "Our credit cards get stolen every day when we shop online," said Yana Zaidiner, token's chief operating officer. The firm's mobile app lets people use a pseudo credit card and payment identity while keeping their real payment information hidden, similar to another startup called Privacy.com.
Lawnmower.io made a pitch that's even more meta and of-the-moment than AlphaBox's: a mobile app for investing in blockchain assets.
Unlike cryptocurrency wallet apps, which are designed for storing digital cash and sending payments, Lawnmower's is billed as "an investment account" with research and portfolio benchmarking tools. (The company partners with Coinbase, a long-running bitcoin wallet provider and exchanger, which handles trades and custody.)
Pieter Gorsira, Lawnmower's founder and CEO, did not shy from appealing to the audience's fear of missing out.
"I ask you to ask yourself, 'Why didn't I buy any bitcoin when it was only $30?' " he said. "Maybe at the time you'd never heard of bitcoin. Maybe you'd heard of it but didn't understand it — crazy hacker currency — or you understood it but didn't believe in the hype."
Other cryptocurrencies, such as Ethereum, Ripple's XRP and a Johnny-come-lately called Steem, have been rallying since the end of the year, Gorsira pointed out.
"It's clear we're witnessing the advent of a new asset class, the blockchain asset class," he said. "There's a problem. If you want to put money into these assets, it's a super painful process." Lawnmower's app, he said, "makes it super easy to learn about and invest in blockchain assets."
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