This fintech's mission: Don't replace banking, simplify it

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Tech-savvy millennials are highly prized banking customers, pursued by everything from fintech startups to traditional banks that have developed their own mobile-only platforms.

But the founders of Bank Novo decided to burrow deeper into that new-generation niche, launching two years ago as a platform to entrepreneurs and fledgling small businesses. Its offerings included artificial intelligence tools that enable customers to better understand their balance sheets and accounts in real time.

Having partnered with Middlesex Federal Savings Bank, the New York-based platform discovered the potential to be gained from fintechs collaborating with community banks, said Novo co-founder Tyler McIntyre.

“Pairing the two, you get the best of both worlds,” he said. “You get the white glove service and understanding of a community bank, with the improved technology you can find at big banks."

The young firm has received funding from Barclays and some private investors. McIntyre would not comment on how much, nor would he disclose the number of customers Novo serves. They are actively raising venture capital.

It has also opened up to retail customers with a checking account and debit card offerings. At the moment its services are mobile-only, but a desktop platform will be provided soon.

In a conversation with American Banker, McIntyre discusses how Novo's model can be applied to the larger business banking industry. What follows is the interview, which has been edited for length and clarity.

How did the idea for Bank Novo come about?

TYLER McINTYRE: I have been in the entrepreneur space for sometime. All the companies I was involved in, we had basic balance sheets, money in and money out. I was forced to use tools like QuickBooks to reconcile things. I could integrate every part of a business except for the banking. It was constantly siloed.

It really meant that essentially I can operate and do everything for the business seamlessly except when it came to banking. For banking, I had to go to the bank branch, I had to call somebody. I had to use the paper statements that came in the mail and figure out what the transaction meant. Banking was such a pain point for me.

That’s where the idea came from. Banking is stuck in the past and linked to these ancient core systems that don’t really foster innovation. What we should really do is build a tech company that can do banking instead of a bank that can do technology. We started with a thesis that business banking sucks and technology can fix it. That essentially led to the snowball of what we have today.

What’s your target audience?

Our target audiences are small businesses who are looking for a better business bank. Small businesses by definition are less than 10 employees and generates less than $5 million in revenue. That’s where we find ourselves in able to provide the most value to the end consumer. But what is interesting is these small businesses provide more than 50% of GDP in the U.S. alone.

We typically find ourselves catering to tech and service businesses with a tech platform. We have find success with high-growth tech businesses, the ones you see typically funded with VC money.

We have people from all over. We originally thought it would be young people being early adopters, but we are finding some of people to be 40 or 50 years old. We realized it’s not just millennials, but all demographics want a better banking solution.

Everybody wants that. They go from a college student running a business out of a dorm room all the way to a multigenerational business in chocolate making. Those are specific examples.

How do you overcome skepticism from people who have relied on longstanding institutions and may be wary about putting their money with an upstart like Novo?

You have your account at an FDIC-insured institution. You get the full FDIC insurance coverage. We work with community banks. The first one we have partnered with has been an essential partner: Middlesex Federal Savings in Somerville, Mass.

We understand that our strong suit is we are good at building our technology and improving experiences. We didn’t want to be bogged down with regulatory overhead, so we found this perfect model.

These community banks are great. They understand banking. They understand it extremely well, but they don’t understand tech. That’s where we come in. Pairing the two, you get the best of both worlds. You get the white glove service and understanding of a community bank, with the improved technology you can find at big banks.

Describe some of the challenges your firm has faced?

We started the business in 2016. We were in the planning stages then. We are officially open for business. We are in a staged rollout. We had accounts opening in early 2018 and it opened up to the general public a month ago.

Right now, we are opening accounts quickly as possible. We are working through a backlog of 13,000 accounts. The biggest issue we have is we can’t open accounts as fast as people signing up, which is not a bad problem to have. We have implemented a waitlist to slow down that pace.

We have 13,000 people in the waitlist that we are working through to onboard.

How do you go up against big banks and well-funded neobanks?

Novo is almost this idiot genius idea. We will always be underdogs, but we really think there is space for us in the market even though we are competing against the biggest banks.

For major banks, the biggest advantage we have over over them is we are not a bank. We will never be Bank of America or Chase. The top most hated brands happen to be major banks.

We believe the consumers we are targeting are kind of tired of having too big to fail. Novo is the Main Street bank for Main Street. Business banking still hasn’t been disrupted. It’s one of the biggest pain points for small-business owners. They are underserved.

We are also not locked down with vendors or 10-year contracts. We built up our technology from the ground up. We don’t have bureaucracy.

Although banks have great tech and IBM and major firms playing for them, the key issue is that their system looks like onions. Over the last decades, they put layers on top of existing systems.

Although banks have a competitive advantage on data, they put their data in warehouses and lakes and these lakes have become glaciers. They have many legacy systems. They can’t unlock these data lakes. It’s hard to cleanse and use them. Banks are spending lots of money to unlock that data.

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