David Pinski's last job in banking involved a lot of sitting in fintech conferences, watching entrepreneurs demonstrate their products, and writing white papers about them. These days he's one of the people doing the demos.
Pinski had worked three years as a technology scout for ING Direct, and then its acquirer, Capital One, when he came across Zumigo. Founded in 2008, the San Jose, Calif., firm matched smartphones' locations with card transactions to help validate users' identities, verify transactions, and in some cases, shoot over special offers. His introduction to the company eventually led to a job offer.
While he loved his job at Capital One, Pinski said, he saw the startup as an opportunity to addressing a serious problem for the industry. So he joined the firm in April 2013 as employee No 5.
"This is cool technology," he remembers telling himself. The following year, Zumigo was one of three startups to complete Wells Fargo's inaugural accelerator.
Pinski is one of numerous ex-bankers who have left financial institutions to work at cutting-edge technology firms at a time when fintech is flush with venture capital and banks are in dire need of digital help.
Some, like Pinski, have transitioned to startups that sell products and services to institutions. Others, like Mike Cagney at the marketplace lender Social Finance, are competing with traditional bank products as frenemies.
These ex-bankers have found challenges in the startup world, such as the scramble for profitability. But all have found the freedom to pursue new products and ideas in ways they never could have in a conservative bank environment.
"Some [bankers] feel they are on the Titanic in some ways," said James Plath, a vice president at Gartner Consulting. "They can't turn fast enough."
JP Nicols, a co-founder of Bank Innovators Council, president and chief operating officer of Innovation Cafe and former banker, said some bank exits are made by disillusioned individuals who want to innovate but get shut down by a risk-averse bureaucracy.
"My LinkedIn is full of recovering bankers," said Nicols.
But the departures of individuals who understand enterprises' labyrinthine processes can end up benefitting banks: they may well create a product that is a boon for the institution. Level Money, a personal finance company founded by an ex-Visa veteran in northern California, was acquired by Capital One when the institution was staffing up in San Francisco, for example.
Cagney, co-founder chief executive of SoFi, says the only way to do what he seeks to do is by breaking from the confines of an industry drowning in rules.
"You are not getting paid to innovate," said Cagney, who also founded the startup Finaplex, which was bought by Broadridge. "You are getting paid to not screw up."
And that may be just as well for an FDIC-insured institution.
"It's just kind of the product," said Jim Bruene, founder of the Finovate startup conference and a veteran of U.S. Bank's research and development department. "It's money and it has to be treated conservatively."
SoFi, a peer-to-peer student loan refinancing provider that has moved into mortgages and, most recently, unsecured personal loans, aims to disintermediate banks. Since it doesn't take deposits like a bank does, it isn't subject to the restrictions that come with being an FDIC-insured institution. The downside has been a more burdensome journey to scale its product: SoFi, which is gunning for an IPO, has had to get lending licenses state by state.
Time will tell if SoFi will emerge as a victor or flame out like so many startups, but Cagney is relishing the opportunity to improve consumers' credit options better at his nonbank. At the same time, banks began buying loans from the firm in the spring of 2014.
"We can do what we can do [only] because we are not a bank," he said.
Perhaps that helps explain why some bankers want an alternative career path. Cagney, who formerly worked at Wells Fargo, says there is no shortage of bankers trying to land gigs at alternative lenders like SoFi.
For those who do, the transition can be as hard as living in a foreign country.
So You Want to Work at a Startup?
Startup-land, after all, often pays employees with ownership instead of the salaries bankers have grown accustomed to. And would-be entrepreneurs need to anticipate an office where a 24-year-old could easily rule the roost. The most striking difference in Cagney's mind is the significance of a single person.
"If I was hit by a bus, Wells would still be there," said Cagney. At an early-stage startup, "you can't afford to lose anybody on the team."
And resources? Well, they're tight.
Sure, banks are handcuffed by regulations, but startups are constrained by the absence of revenue. "In the early days of the startup, you can't even afford the handcuffs," said Steve Kietz, who formerly led marketing efforts for Citi and JPMorgan Chase, ran Mobile Money Ventures and the financial services team for edo Interactive, which provides card-linked offers.
Kietz, who has long had a passion for advertising and for building young companies, is well versed on the realities startups run up against including the unexpected to-dos.
"In a small company, you have to worry about the growth strategies and ideation and, 'Did we set up an expense report system? Did we follow all the PCI compliance?'" said Kietz, who now serves as the president of the marketing firm Inte Q and advises fintech firms.
And the pressure to keep the lights on at early-stage startups is just about as personal as it gets.
"You have gambled," said Sam Maule, an emerging payments practice lead at Carlisle & Gallagher Consulting Group. "You usually don't [have] seed money. It's usually your seed.
"You didn't go and ask for a budget."
And go figure: Working capital is in fact an area ex-bankers are reimagining.
Sandy Kemper, former chief executive of family-run UMB Bank, saw a need to offer something aimed at solving cash flow issues, which he had observed as a banker and then as an entrepreneur years ago.
Kemper's experience working at the Kansas, Mo. bank revealed the degree to which working capital was a systemic industry issue a limitation that hit home whenKemper left to create and run eScout.com in 2000, a startup that spun out of his work at UMB. At eScout, Kemper found times when he needed to ask for premature payments to smooth out cash flow. Those experiences planted the seeds for what would become his digital solution in 2008 and latest act: president of C2FO.
The digital marketplace gives companies another working capital option: they can bid to bump up the date to collect what's owed to them from businesses in exchange for a discount.
"Everyone's AR is someone's AP," said Kemper, referring to accounts receivable and accounts payable. He views the service as complementary to market incumbents and uses it to form partnerships with banks like Fifth Third Bank.
"We create a new source of liquidity," said Kemper. "We are not going after the books on banks."
Like others, Kemper credits the regulatory environment with opening the door for tech companies to try to shake up finance. But Kemper, who recognized his desire to scratch an entrepreneurial itch at eScout (which would later merge with Perfect Commerce), is of the opinion that taking on the demands of a startup role boils down to blood. Sure, the traits can be cultivated or sharpened but he believes the raw material has to exist.
"I think it's a bit of a DNA issue," he said.
Increasingly, banks worldwide have been betting on techie outsiders including those whom they put on payroll.
These recent examples are telling: banks know not to expect quick returns from relationships with fintech firms, but they also understand that startups can't last forever. They get acquired. They pivot. They become corporations. They go bust.
And then their employees are available to hire.
"People go back and forth," said Pinski at Zumigo. "It's a strange world that way. You never know where you might end up."