Our CEO, Brent Jackson, recently had the opportunity to sit down with Jacob Hollabaugh of PayPod: The Payments and Fintech Podcast. During their conversation, Brent and Jacob discussed trends in the banking industry, the potential impact on banking from the recent instability, and the medium-term outlook for fintech.
Here are four key takeaways from the discussion:
Many Businesses Remain Underserved
One challenge that many businesses are facing is limited access to credit from established banks. One reason for this is that banks still need to adapt their understanding of how businesses function and as a result, have not changed their underwriting practices accordingly. Many are still underwriting their business credit cards the same way they underwrite consumer offerings instead of taking a more holistic approach.
At the same time, these “main street” businesses in industries such as manufacturing, real estate, and construction companies have also been ignored by larger software vendors and have not been able to benefit from modern advances in financial services. They have seen some of the most impactful results from adopting Torpago for their business credit needs.
Banks are Recognizing the Need to Modernize
While recognition that they need to modernize had been accelerating, recent turmoil in the banking sector brought on by Silicon Valley Bank's collapse has motivated many institutions, particularly smaller community banks, to make their deposits stickier. Improving their business credit offerings and launching new programs are among the options for achieving this.
As part of this recognition, they are shifting their mindset from feeling like they must build solutions in-house to being open to partnering with solution providers.
Brent pointed out that many of the roughly 4,500 banks in the US have “very antiquated card programs” but also limited resources for developing the software necessary for upgrading their offerings.
The need for modern solutions and newfound openness towards partnerships has created a tremendous opportunity for solutions like Torpago’s PoweredBy, which allows customers to leverage Torpago’s backend infrastructure for their branded credit products.
Further Bank Consolidation is Likely
Brent expects consolidation in the bank space, with many acquisitions on the smaller bank side as well as some consolidation among regional banks.
Though there is potential for more bank collapses, he believes the overall space is strong, with bank managers learning from the SVB crisis and being smarter overall regarding risk management.
“Specifically the banks that we’re talking to, the CEOs, presidents, they have a very strong focus on their balance sheets and making sure they don’t make the same kind of mistakes,” said Brent.
Fintech Will Evolve and Continue to Grow
On the fintech side, Brent expects the “as a service” to remain, but companies can no longer offer just one product/service.
While companies will still need to be great at their core competency, he believes that going forward it will be even more important for fintechs to innovate and create new products for their customers – as well as develop new revenue streams. He expects companies that can innovate and rapidly ship products to be the most successful.
"We believe that you've got to be the best at what you're doing," said Brent. "But at the same time, a lot of new businesses are being started, and you need to continue to innovate on the product side. You need to make sure you're serving your customers well. You've got to roll out new modules, new revenue streams. I think there will be some consolidation with some of these legacy as a service provider that didn't innovate well enough."
Despite the potential for consolidation, he expects the fintech space to continue to grow, especially given the banking sector's newfound interest in partnering with fintechs and investing in “banking as a service” solutions rather than competing with them.
"I don't know if this is a trend, but we're seeing a ton of banks looking to power fintech programs behind the scenes benefit from interchange revenue, banking as a service revenue. A lot of new fintech will likely be started over the next decade. And specifically, we're seeing a lot of the venture dollars flow into the earlier deals like Series A, Series B."
Watch the full interview here or below!
