Fintech startups learn one thing at a very early age — to make it in the real world, they have to solve a real-world problem.
This year's crop of tech companies to watch includes clusters of companies trying to solve some of banks' biggest headaches, including slow mobile onboarding, sluggish loan processes and the challenge of authenticating customers whom institutions never see in person.
How to shorten the time it takes to become a new customer on a smartphone app or mobile browser is among the questions banks are increasingly trying to answer as branch transactions continue to decline.
They have work to do. Digital abandonment rates, after all, are estimated at upward of 80%, according to a study published in April by Mobile Strategy Partners, a firm that sells mobile account opening technology.
That troubling number is chalked up to the time-sucking account opening experiences often in place for on-the-go consumers. Some institutions still require consumers to mail in documents or visit their branches while trying to sign up for accounts on smartphones. Other institutions make the task hard by repurposing forms created for desktop banking.
Sure, some consumers are motivated to go through a desktop-oriented onboarding experience on a mobile device. But the laborious process is also what can and does prevent consumers from becoming customers, said David Gerbino, a fintech consultant and former community banker.
"There is no reason why every single bank and every single credit union can't have a mobile-account-opening process," said Gerbino, who believes onboarding is supposed to also include elements that help get people engaged with the product, such as setting up bill pay, just as much as earning their business. "If one can do it, they can all do it."
Many banks are coming to realize their overwhelming onboarding processes are getting in the way of acquiring customers at a time when many young adults expect nothing less than a few clicks of a button to complete a task.
USAlliance Federal Credit Union, for instance, had a paper process that took upward of 30 minutes to sign up for an account in person. It also took 10 minutes online to become a member through an experience that the institution readily acknowledges wasn't the best.
So with help from Gro Solutions, the Rye, N.Y. institution now has an account-opening process that takes less than four minutes to complete on a mobile app or mobile-optimized web page as USAlliance works to become a mobile-first brand -- even in its branches. Employees in its 22 branches and at live events roam around with tablets to sign consumers up for accounts with the improved mobile experience.
Several young firms in our Companies to Watch, including Avoka, Gro Solutions, a subsidiary of Mobile Strategy Partners, Fenergo and Trunomi are offering answers to this conundrum, while another — ZenBanx — is already letting consumers use their smartphone cameras to input data instead of typing out the info needed to become customers of the digital-only account.
Kevin Randall, chief information officer and senior vice president for USAlliance, said the institution saw a need to use tech to make the signing up experience breezier for a device increasingly gaining significance.
"We are placing the bet that the mobile channels will gain additional traction for new business," said Randall. "I think consumer expectations will continue to rise."
So the credit union slashed unnecessary steps it used to require by taking advantage of sensors on the mobile device. Instead of typing or penciling in information like someone's address like in yesteryears, the institution's mobile app uses the mobile device's camera and GPS to input data needed to become a member and to make the chore quicker.
The institution says the smoother method is helping to position the brand as with-it and to give employees an easier process to work with. Since implementing Gro Account Opening, USAlliance has observed its mobile abandonment rates have "dropped significantly" though it will not disclose by how much.
The demand to make something that had been hard easier to do is only expected to intensify for mobile devices.
"More and more people are moving to mobile and using [the channel] more frequently," said Kristi Kenworthy, assistant vice president of ecommerce at USAlliance. "It's in your pocket and it's so easy to use. I think it will be the channel of choice."
Lack of Loan Data Analytics
Decades-old manual processes have been slowing down banks' loan portfolio growth goals at a time when newer and nimbler entrants are offering borrowers other options. So banks are increasingly investing in tech to improve their outdated processes and to reap data insights as a bonus result.
Yadkin Bank, for example, decided to roll out the nCino cloud-based system to purge repetitive manual data entry and to bring consistency to what had been a patchwork of methods to process and administer commercial loans. The North Carolina bank, after all, had just completed a merger of equals in 2014 with VantageSouth Bank, which had acquired and merged with four banks in a period of three years — all of which had a different style of processing commercial loans, said Brad Neigel, director of commercial banking channel strategy at Yadkin.
Since deploying nCino, Neigel credits the tech for supporting its growth strategy in an effective and scalable manner even with a recent reduction in support staff.
The efficiencies gained are numerous from the software that combines everything from customer relationship management to business process management in a single place. He says it saves bankers from laborious manual tasks of having to reenter data in Microsoft Excel, Word and other platforms. The $4.2 billion-asset bank's results are a reflection of emerging tech that aims to help support bank partners grow their loans in a variety of ways. nCino, Leadfusion and Mambu are among the Companies to Watch that are working to help banks increase their commercial and/or retail loan portfolios by generating stronger sales leads, making servicing loans cheaper through cloud banking platforms and automating what had been manual tasks.
At Yadkin Bank, Neigel identifies data transparency as one of the greatest benefits. "Prior to nCino, we could not tell you how long it took on average to originate a loan," he said. "Now we know and have a benchmark to begin comparing to. This will allow us to better understand what changes we can make to improve those results and be able to track the outcome."
Other banks, meanwhile, are improving their public websites to help potential borrowers compare and contrast loans at a time when branch transactions continue to decline.
Zions Bancorp, for instance, partnered with Leadfusion so the institution's digital retail prospects could get an idea of what to expect if they, say, refinanced their home. Rather than a static calculator, the Leadfusion comparison tool is designed to let consumers do a deeper dive of what-if loan scenarios through an easier-to-understand format. Consumers can enter their desired loan amount, loan purpose and property value; the software spits back loan options that include estimated fees.
William Spencer, retail lending manager at Zions, credits the software for yielding higher pull-through rates than those who don't use the tool.
"I believe they were more informed," said Spencer. "They didn't apply for the wrong loan to begin with. "There's no more hiding or guessing which one might be better."
Up next, the $58 billion-asset company is considering ways to customize the tool to suit its small business customers who will have more complicated loan needs.
"The small business opportunity is huge," said Spencer.
Solving Digital Identity
In a world where personal information is frequently stolen if not already available on social media sites, banks are challenged to recognize consumers from criminals quickly and accurately online. And they are increasingly having more work to do to get in front of the persistent problem.
Al Pascual, director of fraud and security at Javelin Strategy & Research, said banks' fear of online fraud is palpable and rising at a time when EMV is finally coming to the U.S. Other countries, which adopted EMV chip cards long ago, observed spikes in online application fraud after the conversion made counterfeit plastic cards harder to commit crimes.
"Banks are really concerned," said Pascual. "They are expecting the big bad trend in application fraud because of EMV."
But there's work ahead in rethinking verifying identity for a digital era. "It's like riding a battleship," said Pascual. "It doesn't turn on a dime. …It takes time and money."
It also takes layering in technology. Banks use: device ID technology that uses a web connected device to authenticate the consumer; software that mines consumer data like how fast someone types to detect anomalies in behavior; and biometrics to ID a person, in addition to the older school techniques like pinging credit bureaus and refining risk models that trigger red flags. BioCatch, iovation and inAuth are among the firms in our Companies to Watch aiming to help confirm someone is who he says he is and detect threats on digital channels.
A large credit card issuer, for instance, wanted to stop and prevent fraudsters from opening credit cards through its website. So by partnering with iovation, the issuer has been able to help determine whether someone is an imposter by monitoring what device he is using to interact with the brand. The idea is to use the tech to detect a device that has tried to open 10 credit cards under different identities, as well as to help spot an imposter trying to make a wire transfer after logging in but using a device not associated with the account.
The issuer, which wished to be unnamed, credits the tech that's been in place since 2009 for improving its fraud rates. Without putting a number on it, the issuer said the software particularly helps in detecting and mitigating one-to-many fraud attacks. Next, the company plans to expand the countries in which it uses the software.
"iovation is one piece of puzzle," said the fraud prevention executive. "I don't like to put fraud detection into one bucket. You always want a layered approach."
That attitude is equally true when trying to recognize existing customers.
Shirley Inscoe, a senior analyst at Aite Group, says many bankers are expecting mobile devices to increasingly play leading roles in their authentication strategies at a time when data leaks make challenge questions laughable.
"Almost every executive has said out-of-wallet questions are pretty much worthless because of all the data breaches and all the social media [updates]," said Inscoe. "Bad guys have the data to successfully answer those questions."
Real customers can't always answer the questions meant to unlock their accounts. Inscoe said she knows of someone who called in and was asked where she went on her honeymoon. The answer wasn't straightforward as the legitimate customer had to first ask: "which of my three marriages are you talking about?"
So something has got to give in a world where ever-more consumers prefer to interact with financial services online.
"Customer preferences have changed," said Justin Dunn, senior vice president and marketing director at WSFS Bank. "It is not going back to the way it was." Dunn expects community banks to increasingly partner with fintech firms to catch up to the times. In June, WSFS Bank partnered with ZenBanx, which offers a digital-only, multi-currency account that uses numerous technologies to help identify consumers, including Jumio and Regulatory Data Corp., and signs them up quickly. "It's been a great partnership," said Dunn. "We view ZenBanx as our window into Silicon Valley."