“As far as banking infrastructure goes, the United States has the worst in the modern world.”
But in the meantime, the pipes are creaky, even a bit rusty, you might say.
There are any number of reasons for the lag, Dean said. Banks — especially smaller ones — are finding their existing resources stretched thin.
There’s a veritable alphabet soup of regulators at the state and federal levels.
And, of course, there is an extraordinary amount of fragmentation across the industry because there are thousands of banks out there and no shortage of FinTechs coming into the space.
Changing it all is akin to turning an aircraft carrier in stormy seas, but a network approach can hasten and streamline the push toward modernization — without requiring firms to change their processes.
“We’re [like] plumbers [who are trying to improve the connecting pipes of the banking system] and eventually all the [consumer’s] money is going to move through [these pipes to and from] one of ‘our’ banks,” Dean said.
API banking technology can make it 10 times faster and cheaper for banks and FinTechs to do business, Dean said, which includes any company that moves money to reach new customers on their business platform, including embedded finance companies.
Treasury Prime’s platform, he said, helps these digital-first enterprises navigate the challenges of money movement and of risk — and in the process tap chartered banks’ infrastructure. By partnering with FinTechs, the banks gain some additional revenue streams.
Dean said the two-sided approach matches supply and demand and levels the playing field a bit. He noted to Webster that his previous experience at Silicon Valley Bank signaled the need for an API platform. FinTechs wanted to get more fully into banking and embed financial functions, but banks have held most of the economics and lacked the technology to do fintech partnerships effectively.
Those banks have been preoccupied with risk and safety, he said, and have needed help with compliance as they work with the FinTechs and increase their revenue streams.
As to those revenue streams, banks can differ in what they seek; some banks want deposits, some want interchange, and others want to boost B2B presence.
“At the end of the day we’re a software company, but that’s really all the banks need,” Dean said. For the FinTechs, there’s the desire to add deposit accounts and payments to their existing products and broaden the appeal to an already-installed customer base. In doing so, they move well beyond the confines of simply offering a mobile prepaid card. There’s even the ability to offer “last mile” capability to crypto firms as they move back and forth between digital offerings and traditional fiat.
“We’re a communication bridge between all of these parties and the traditional bankers and FinTech entrepreneurs who may not traditionally talk to each other,” Dean said.
Treasury Prime did $2 billion in transactions in May and is on track to hit $5 billion in monthly transactions over the summer.
The transition toward embedded banking will be slow, but the pace will quicken. Getting to full functionality and giving consumers a more modern banking experience won’t take a year, but it won’t take a decade either, according to Dean.
To get a sense of scale and acceleration, he said the roughly $50 billion in deposits held by FinTechs in the United States will mushroom to $1 trillion in just a few years. That amounts to 5% of total deposits in the U.S., and that’s just the beginning.
Through the next few years, as firms get more comfortable with having embedded payments in the mix, paper checks and cash will fall by the wayside, and the U.S. will catch up to places like Europe.
All manner of verticals will evolve, moving toward digital means of paying and getting paid. Lending will see a digital transformation as banks and FinTechs work together to underwrite risk, with better guardrails in place in real time.
“This signals a huge change in how regular consumers interact with the banking system,” Dean said.