When everyone is special — or at least says they are — no one is.
Application programming interfaces (APIs) and all manner of updated tech infrastructure have made it possible for pretty much any company to embed payments and banking-like services into apps.
And time is running short to siphon deposits and checking accounts away from larger banks.
“There’s about $75 billion in deposits controlled by FinTechs these days, and that’s a tiny drop, a fraction of the $20 trillion in total deposits in the U.S.,” Dean said.
The growth rate is indeed heady, given the fact that the FinTech-held tally was $50 billion at the end of last year.
But as to that ceiling? Dean predicted FinTechs would “top out” at $1 trillion because a lot of what they are offering is akin to commodities, with little to set one provider apart from another. The APIs that are out there are copies of programming Dean and his peers developed at Standard Treasury, later acquired by Silicon Valley Bank.
As many as 39% of people said a digital bank could be their primary bank, but less than half of them were willing to switch. And fewer than 10% of consumers call them a primary bank.
To help consumers cross the Rubicon, so to speak, the FinTechs and the neobanks must recalibrate what they do and how they do it to make sure they are serving specific needs. It’s no longer enough to offer checking accounts or earned wage access. Simply having a bank charter is not enough either, Dean said (adding that in the U.S., there are roughly 4,800 charter banks, which is evidence that there are too many out there).
Moving Beyond the Consumer
For digital-first enterprises to truly thrive, they can best position themselves as Software-as-a-Service (SaaS) companies that manage commercial applications — not just consumer-facing apps, he said. That means helping enterprises tackle operational challenges while having a bank account attached to it all. Managing schedules, vendors and payments are all intertwined in a way that winds up being indispensable for the client firm.
“They don’t think of the provider as a bank; they think of it as an operating system for their business,” said Dean, who added that “there are 10,000 deposit institutions in the U.S. There are not many software companies that help, for example, manage construction job sites.”
And that’s where the competitive advantage lies for the digitally savvy upstarts, where the small community bank, or even the marquee name like Goldman Sachs simply cannot offer a specialized app to address those specialized business functions.
While banks have historically been good at risk management and client relationships, the FinTechs are catching up by maintaining a direct relationship with the bank. And by striking partnerships, everybody wins.
“The FinTechs and the banks are different kinds of companies, but they can be complimentary to one another,” he said.
The complimentary nature of those organizations is illustrated by the fact that banks are good at managing risk and making sure that money moves safely, while FinTechs offer the innovation that banks need.
The regulatory picture governing that complex relationship is still a work in progress, and Dean predicted there will be any number of Office of the Comptroller of the Currency (OCC) letters that come out with dozens of bullet points establishing a cogent framework. And it will take some years to get everyone on the same page.
“Bureaucracy moves slowly,” he observed.
And the banks themselves are cautious about establishing new relationships or onboarding new tech providers. That leaves room for providers like Treasury Prime to work with banks and FinTechs to take care of know your customer (KYC) and anti-money laundering (AML). Against that backdrop, he said, companies can manage to their core competencies.
“If you want to be a bank, be a bank,” he said, “and if you want to be a software company, be a software company.”
Looking ahead, he said, we’re retreating from the days when investors and institutions would just write big checks to FinTechs. The firms with fundamentally strong, niche businesses will survive and thrive.
“Slow and steady wins the race,” said Dean.