Webinar: Changes and Challenges Impacting Fintech Companies


This past year, significant efforts have been made by the SEC, FINRA, state regulators and CSBS to streamline regulations and processes for all fintech companies. These ongoing changes have presented opportunities and challenges that impact the fintech community around the globe. Please join us for a 60-minute webinar, moderated by Manatt’s fintech leader Brian Korn, […]

The post Webinar: Changes and Challenges Impacting Fintech Companies appeared first on Lending Times.


This past year, significant efforts have been made by the SEC, FINRA, state regulators and CSBS to streamline regulations and processes for all fintech companies. These ongoing changes have presented opportunities and challenges that impact the fintech community around the globe. Please join us for a 60-minute webinar, moderated by Manatt’s fintech leader Brian Korn, to gain insight to the following key topics:

  • Updates on the bank partnership model
  • The latest on charter options, including the OCC fintech charter and ILCs
  • The state and federal enforcement agenda, including rapidly growing FTC activity
  • SEC/FINRA Joint Statement on Custody and Customer Protection Rules for cryptocurrency and digital investments: Paradigm shift or more of the same?
  • State fintech regulatory sandboxes: What are they exactly, and will more states continue to opt in?
  • Deal terms: How the regulatory environment is driving investor and lender behavior for originators

If you can’t make our live program on September 19, click here.

The post Webinar: Changes and Challenges Impacting Fintech Companies appeared first on Lending Times.

Why Community Banks and Fintech Partnerships Make Cents

bank-fintech partnerships

Fintech is often viewed as an industry disrupter, but its greatest influence may be as a collaborator, benefiting both banks and themselves, especially in the lending space. Conceptually, partnering makes sense. For community banks, the cost of building or buying their own online origination platform is prohibitive. By collaborating, banks can achieve more with less […]

bank-fintech partnerships

Fintech is often viewed as an industry disrupter, but its greatest influence may be as a collaborator, benefiting both banks and themselves, especially in the lending space. Conceptually, partnering makes sense. For community banks, the cost of building or buying their own online origination platform is prohibitive. By collaborating, banks can achieve more with less risk: They can get improved services for significantly lower capital expenditure; a reduced cost of doing business; and, more importantly, access to market segments that would otherwise not meet their credit criteria. Collectively, this advances not only the business of community banks but also the mission.

In turn, by partnering with banks, fintech firms can gain brand exposure, more quickly scale their businesses, and increase their access to capital and liquidity, which translates to better company returns.

Bank and Fintech Partnership Models

Initially, bank-fintech partnerships followed consumer demand for digital services, especially mobile access. Lending partnerships soon followed, first focusing on retail consumers, and more recently, on SMEs. Partnership structures vary depending on which party sources the borrower, underwrites and funds each loan, and whether the product is white labeled under the bank’s name or co-branded. Below is an expanded chart of most common structures and selected partnerships, published by Lend Academy.

Borrower Source Underwriter Lender Abbrev. Customer Style Year Example (Bank/fintech)
Fintech Fintech Bank FFB Retail N/A 2014 Union Bank / Lending Club
Fintech Fintech Bank FFB SME Co-brand 2015 BancAlliance / Lending Club
Fintech Fintech Bank FFB Retail N/A 2016 Credigy / Lending Club
Fintech Fintech Bank BFB SME White label 2015 ING / Kabbage
Bank Fintech Bank BFB SME White label 2016 JPMorgan / OnDeck
Bank Fintech Bank BFB SME White label 2016 Santander / Kabbage
Bank Fintech Bank BFF Retail Co-brand 2015 Radius Bank / Prosper
Bank Fintech Fintech BFF SME Co-brand 2015 Regions Bank / Fundation
Bank Fintech Fintech BFF Retail Co-brand 2016 Regions Bank / Avant
Bank Fintech Bank/Fintech BF-BF SME Co-brand 2017 New Resource Bank / P2Binvestor

Partnership Model Breakdown

Lending Club, one of the industry’s largest online consumer lenders, partnered with a series of banks via the FFB model. In their case, the banks provided lending capital as part of Lending Club’s P2P investor base. This partnership type expands the bank’s loan portfolio and enhances the online lender’s access to capital.

JP Morgan’s partnership with OnDeck (BFB) improved the “difficult customer experience” of securing a small business loan by combining existing customer data with a streamlined underwriting platform to fund loans more quickly.

The BFF model uses the bank’s customer base to source borrowers while the fintech firm underwrites and funds the loan. Banks generally receive referral fees when their customers borrow via the fintech portal. With the Regions Bank and Fundation partnership, Fundation funds loans up to $1 million while Regions handles larger loans.

P2Binvestor and New Resource Bank advanced the bank-fintech partnership into new territory with a co-lending, asset-based financing product. Together, the bank and P2Bi provide the capital, and the bank sits in a senior lien position. P2Bi underwrites and manages each facility, essentially acting as an ABL service provider. In turn, borrowers receive a blended interest rate that reflects the risk profiles of both the bank and the fintech firm.

This model (BF-BF) offers several unique benefits for banks and borrowers. For banks, it provides the opportunity to support small businesses that would otherwise not meet their credit criteria and allows them to generate additional lending revenue with less risk. In addition, the co-lending structure acts as a potential onboarding mechanism to traditional bank lending as once the borrower qualifies it can graduate to the bank’s regular lending products. Since P2Binvestor’s technology is already integrated with the bank partner, the transition from bank-fintech partnership to bank is seamless, also a significant borrower benefit.


There can, however, be challenges. In a recent Manatt survey on bank-fintech partnerships, bank respondents cited overall preparedness as a point of concern when considering a fintech collaboration. Per mandates from the Office of the Comptroller of the Currency (OCC) and Consumer Financial Protection Bureau (CFPB), banks must implement appropriate oversight and risk management processes for third-party relationships and service providers. Other issues for community banks include data security and staff training, and technology integration with legacy systems. Due to these concerns, it’s imperative that when in conversations with a fintech firm, community banks are clear about the responsibilities, requirements, and protections that will contribute toward a successful partnership.


As seen above, there are numerous ways that banks and fintechs can partner together in order to meet the needs of the consumer involved. Although challenges can be present, it’s important to address these issues before they surface in order to prevent them from happening. Overall, the ROI from these partnerships can ultimately change the success of a business.


Krista Morgan is CEO of P2Binvestors.

For more on community bank and fintech partnerships, check out P2Binvestor’s white paper on the topic.

Working with Fintech Originating Banks: Best Practices and the Evolving Regulatory Environment

Working with Fintech Originating Banks: Best Practices and the Evolving Regulatory Environment

Webinar: Working with Fintech Originating Banks: Best Practices and the Evolving Regulatory Environment Date: Wednesday, February 7, 2018 Time: 1:00 pm Eastern In this follow up to the 2016 webinar, we’ll review the latest regulatory changes affecting the marketplace lending industry. We’ll also discuss best practices for working with a charter bank and how to choose […]

Working with Fintech Originating Banks: Best Practices and the Evolving Regulatory Environment

Webinar: Working with Fintech Originating Banks: Best Practices and the Evolving Regulatory Environment

Date: Wednesday, February 7, 2018
Time: 1:00 pm Eastern

In this follow up to the 2016 webinar, we’ll review the latest regulatory changes affecting the marketplace lending industry. We’ll also discuss best practices for working with a charter bank and how to choose the right bank partner for your lending model.

This informative 30-minute webinar will cover:

  • How to successfully navigate the evolving regulatory environment
  • The emergence of “banking as a service” and what it means to MPL platforms
  • Mitigating compliance risk
  • The 3 biggest threats to emerging fintech companies
  • Madden vs. Midland Update



Gilles Gade
Founder, CEO, Chairman
Cross River Bank


Brian Korn
Head of Digital Finance & Marketplace Lending, Partner
Manatt, Phelps & Phillips, LLP

Click here to register:   Allen TaylorPosted on Categories Banking, banking as a service, Banks, cross river bank, digital finance, Events, Featured, Madden, Manatt, marketplace lending, Regulation, risk, risk compliance, webinar

Tuesday July 18 2017, Daily News Digest

fintech adoption

News Comments Today’s main news: Laplanche shares vision for Online Lending 2.0 at Lang Di Fintech. Elevate named a great place to work (again). FinLeap raises 39M Euro. Crunchbase-like database launches in Singapore. Today’s main analysis: Ant Financial poised for more growth. Fintech use reaching mass adoption among digital consumers. Today’s thought-provoking articles: OCC vs. New York DFS.  Ant Financial […]

fintech adoption

News Comments

United States

United Kingdom


European Union




News Summary

United States

Elevate Named Great Place to Work by Independent Analysts for Second Year in a Row (4-Traders), Rated: AAA

Elevate was recently certified as a great workplace by the independent analysts at Great Place to Work®. Elevate earned this credential based on ratings provided by its employees in anonymous surveys. A summary of these ratings can be found at 

“According to our study, 87 percent of Elevate employees say it is a great workplace,” says Sarah Lewis-Kulin, Vice President of Great Place to Work Certification & List Production.

79% of Elevate employees completed a survey, resulting in a 90 percent confidence level and a margin of error of ± 2.04.

Ex-LendingClub CEO Laplanche sees new Upgrade venture growing loan volumes (Yahoo! News), Rated: AAA

Online lender Upgrade, launched by former LendingCLub Corp CEO Renaud Laplanche in April, expects to grow its loan volumes and add new asset managers to its roster of buyers in coming months, Laplanche said in an interview on Monday.

Upgrade has been testing its credit quality and risk management systems, compliance framework and other operations, as well as building up its infrastructure to deal with rising volumes before ramping up the service, Laplanche added. The company has signed up six asset managers who are already buying or plan to buy loans originated by the company, including Jefferies LLC and an unnamed Hong Kong firm, he said.

OCC vs. New York DFS: Battle for the Future of FinTech (Bloomberg BNA), Rated: AAA

In the rapidly developing world of financial technology it often is unclear who has the legal authority to regulate the activities of newly created companies. Many of these companies do not neatly fit into any established regulatory scheme. However, answering the question of who will be creating the regulatory rules for FinTech companies is important both for regulators and the FinTech companies themselves.

State Regulators Want to Regulate FinTech

Over the past several years, state regulators have been staking out positions as leading regulators of FinTech companies.

During this same period, federal regulators have announced the intention to assert control over the regulation of FinTech companies.

The OCC indicated that its authority to grant FinTech Charters to nonbank FinTech companies stems from 12 C.F.R. § 5.20(e)(1), which states that the agency may grant such charters to institutions that conduct “at least one of the following three core banking functions: receiving depositions, paying checks, or lending money.”

The Lawsuit

The DFS did not limit itself to criticizing the proposed FinTech Charters. On May 12, 2017, the DFS filed a lawsuit against the OCC in the District Court for the Southern District of New York, alleging that the OCC’s proposed FinTech Charters exceeded the agency’s statutory authority under the National Banking Act and violated the Tenth Amendment. Based on these claims, the DFS sought declaratory and injunctive relief that would declare the proposed FinTech Charters to be unlawful and prohibit the OCC from creating or issuing these charters in the absence of express authorization from Congress.

Third, even if the OCC prevails and begins granting FinTech Charters, state agencies such as the DFS will still attempt to regulate FinTech companies. This could lead to future disputes over the nature and scope of the federal preemption of state regulations, which will add to the confusion over which regulations apply to which FinTech companies.

As a result of these issues, FinTech companies have little idea what the future regulatory terrain will look like. This uncertainty makes it difficult for companies to predict the future regulatory cost of business decisions they would like to make today.

Worthy Financial Announces the Closing of Its Seed Financing Round (BusinessWire), Rated: A

Worthy, a digital investment app that redefines how Americans access investment products, diversify their portfolios and save for retirement, announced the successful closing of its seed financing round. The funds will be used for the full-scale roll-out of the Worthy mobile app, and will enable Worthy to expand its growing user base as well as to broaden the array of investment product options it offers retail investors.

Worthy provides users with the unprecedented ability to spend their way to retirement by investing retail round-ups into high-yielding fixed interest bonds, the proceeds of which fund growing businesses. In doing so, anyone has the capability to build a nest egg, enhance portfolio returns, mitigate risk, and generate both social as well as financial returns. Worthy investors grow their portfolios while simultaneously supporting American entrepreneurs.

Stash, now valued at $ 240 million, lets anyone start investing in the stock market with just $ 5 (Business Insider), Rated: A

Krieg and Robinson realized then that they had an opportunity to help.

They founded Stash, an app that lets you build a portfolio and start investing with only $5, plus it teaches you the ins and outs of the stock market.

Krieg and Robinson realized then that they had an opportunity to help.

The company launched in October 2015 and just closed on a $40 million Series C led by Coatue Management. That brings Stash’s total funding to $78 million and values the New York-based startup at $240 million, according to a person familiar with the company.

Stash makes money by charging a subscription fee of $1 per month for accounts with less than $5,000. When an account has more than $5,000, Stash charges a fee of 0.25% fee.

Stash now has about 850,000 customers nationwide.

Why Robo-Analysts, Not Robo-Advisors, Will Transform Investing (The Financial Revolutionist), Rated: A

Robo-advisors and robo-analysts are both important to enabling wealth management firms to cut costs without sacrificing quality of advice, but the importance of a robo-analyst to enhance the quality of investment advice shouldn’t be underestimated.

Today, many of the tasks performed by robo-advisors are low value-added services such as determining and communicating asset allocation strategies (e.g., 60% equities, 30% fixed income and 10% cash). In fact, these services are so low value-added that advisors cannot make money doing them unless they are bundled with higher value-added services.The value proposition of a robo-analyst is very different.

Specifically, by shining an analytical light in the dark corners of financial filings, robo-analyst technology can identify many critical data points overlooked by most research analysts today. No longer must investors rely on the headlines or management-manipulated earnings. With new technologies, investors can receive a much fuller, more comprehensive analysis of financial filings, company profits and valuation so as to make better informed decisions than ever before. As a result, robo-analyst tech raises the analytical bar universally, enabling investors to transcend the short-sighted and high turnover trading mentality that, in the long run, does more damage to investors than good.

Bankers Worry About Jobs Lost to Automation (Newsmax), Rated: A

A quarter of banking’s “front line” professionals are worried about losing their jobs to robots and artificial intelligence-boosted mobile apps, according to a LinkedIn survey.

In the poll of 1,012 pros from financial technology, investment banking, retail and corporate banking, financial and hedge fund management, accounting, insurance, and private equity, 25 percent said they are concerned automation will impact their job security – with 34 percent of retail bankers saying it is a significant concern for them.

The survey also found 42 percent of financial services pros think financial technology is a “direct threat” to traditional financial services, compared with 13 percent of professionals who work in traditional financial services, and 18 percent of all the financial professionals.

Matthew Wong of CB Insights on Insurtech (Lend Academy), Rated: A

In today’s episode of the Lend Academy podcast we have Matthew Wong of CB Insights. He has been following innovation in the insurtech space for some time and his weekly insurtech newsletter has a subscriber base of more than 18,000 people.

In this podcast you will learn:

  • Matt’s background and how he first became involved in insurtech.
  • What CB Insights does.
  • The headwinds facing insurance industry incumbents today.
  • Why millennials are not buying insurance as much as other generations.
  • Why insurtech is hot right now when it comes to VC investments.
  • Some of the most interesting companies in the insurtech space right now.
  • Why it will probably take a long time for these startups to get to scale.
  • Why Matt likes Zhong An Insurance, the first and largest online insurer in China.
  • How the incumbent insurance companies have been reacting to this surge in startup activity.
  • Why Munich Re is one of the most interesting incumbents.
  • Matt’s view on what SoFi is doing partnering with a life insurance company.
  • The endgame for many of the insurtech startups.

Solar Loans Are A Risky Investment But Not Unlike Other ABS (ValueWalk), Rated: A

Solar loans are on the rise as the industry undergoes a transition and credit investors consider whether these asset-backed securities are worth the risk. In some ways, they’re similar to other types of collateral, and credit investors are already used to dealing with the types of risk they pose. However, analysts at Moody’s warn that they’re one of the riskiest securitization asset classes.

The reason solar loans are so new is because until now, the residential solar market has been dominated by third-party ownership of solar panel systems via power-purchase agreements and leases. GTM Research projected late last year that 2017 will be the year direct ownership of residential solar panels retakes its position as the top solar financing model.

The firm projected that 55% of the U.S. residential solar capacity that’s installed this year will be bought by customers who either pay in cash or take out a loan to finance their systems.

Jefferies gives IBM Watson a Wall Street reality check (TechCrunch), Rated: A

IBM’s Watson unit is receiving heat today in the form of a scathing equity research report from Jefferies’ James Kisner. The group believes that IBM’s investment into Watson will struggle to return value to shareholders.

The narrative isn’t the product of any single malfunction, but rather the result of overhyped marketing, deficiencies in operating with deep learning and GPUs and intensive data preparation demands.

If job postings are any indication, IBM is not keeping pace with other technology companies in hiring machine learning developers.

Cascade Fintech Signs 3-Year Contract for AU10TIX ID Authentication & Onboarding Automation (WVAlways.com), Rated: A

US prepaid card and P2P payment services provider Cascade Financial Technology Corp has signed a 3-year contract to power customer onboarding and KYC with 2nd generation ID authentication and onboarding automation. AU10TIX Secure Customer onboarding (SCO) cloud service that already powers major players across financial services markets, is known not only to increase KYC robustness and fraud protection but also improve customer conversion success chances and operating efficiency.

The future of Millennial banking (Marketing-Interactive), Rated: A

In the last ten years, the fundamental assumption that financial institutions are the only avenue to financial transactions is being called to question, especially by Millennials, who are by far the most entrepreneurial generation.

In a disruptive world, what does the future of banking and finance look like? How can and should financial institutions adapt to remain relevant, or even lead in this era of change?

  • Seamless, efficient and fast

Payments are perhaps the most basic and prevalent interaction with finance for the masses, yet for the longest time, payments to businesses saw minimal innovation. P2P transfers were never a focus for banks since it was a zero commission business. This was a pain-point to Millennials, who are used to sending everything from photos to documents electronically – having to withdraw physical cash or obtaining account details to securely transfer money for lunch is considered old fashioned!

  • Flexibility and access to funds

Traditional unsecured loans might require a strong financial history or proof of steady income stream, which would be unlikely if the individual were not taking a salaried job. Cash advances on credit cards would usually incur overly high interests costs.

This creates opportunities for peer to peer (P2P) lending marketplaces such as Prosper and Lending Club, platforms which create alternative ways to access cash loans while providing alternative yields on deposits.

  • Information access

Websites such as MoneySmart, DirectAsia, GoBear and Milelion position themselves as third-party and an unbiased advisor of investment products and policies. They perform the heavy lifting of trawling through multiple sites to aggregate and analyse information, empowering consumers to make informed purchases in the shortest time.

  • The reversal to brand love

The answer lies in placing the consumer in the centre of their businesses and asking the right questions constantly to redefine scope of value-add. It is an iterative journey, and worthwhile to include consumers as co-creators in product design and transformation.

Wela, the World’s First Financial Advice App Pairing Artificial Intelligence with Real Advisors, Available for Android Devices (Marketwired), Rated: B

Wela, a personal finance app that pairs artificial intelligence (AI) and human advisors, announces today it is available for download on Android devices in addition to iOS. Wela pairs real financial advisors with AI through the personification of its digital advising algorithm, Benjamin. The first true digital advisor, Benjamin utilizes AI to track users’ daily, weekly and monthly spending habits and provides personalized advice based on their financial needs and goals. Unlike other free consumer finance apps, Wela also offers access to real financial advisors via phone, video chat or in-person at no additional cost.

The Android app contains the full functionality of the iOS version and employs the same innovative features that allow users to track all their financial accounts in one place. Wela protects user privacy by leveraging bank-level security, as well as 256-bit SSL encryption and two forms of secure authentication. Capable of aggregating data from more than 13,000 financial institutions, Benjamin pulls linked account information to run a complete analysis, helping users take steps toward financial wellness based on three main pillars: creating an emergency reserve, paying off debt and implementing an investment strategy. In addition to Benjamin’s foundational metrics, the algorithm delivers custom insights on demand, helping users stay on track to reach their short- and long-term goals.

Three Leading Lawyers Take the Helm of Manatt’s Financial Services Group (BusinessWire), Rated: B

Manatt, Phelps & Phillips, LLP, today announced new co-chairs of the firm’s industry-leading financial services group, with the appointment of Richard Gottlieb, Brian Korn and Donna Wilson.

Gottlieb is a partner in the firm’s Chicago office, Korn is based in Manhattan, and Wilson practices in Manatt’s Los Angeles office.

United Kingdom

MarketInvoice Stands at £1.34 Cumulative Invoices Funded (Crowdfund Insider), Rated: AAA

This past February, MarketInvoice shared it had funded invoices over £1.1 billion since platform launch in 2011. The online lender said it expects to top the £2 billion in invoices funded by the end of the year.

In Q2 of 2017, MarketInvoice announced that it had funded invoices from UK businesses worth £161.9 million. Compare this amount to the £103 million funded in Q2 of 2016 and the platform is generating some serious momentum.

In the first quarter of 2017, MarketInvoice generated £130 million in invoice finance.

RateSetter’s new chairman heralds benefits of provision fund (P2P Finance News), Rated: AAA

RATESETTER’S new non-executive chairman Paul Manduca (pictured) has heralded the peer-to-peer lender’s “simplicity”, citing its provision fund as an example, on his first day in his new role.

The asset management veteran said that financial innovation can sometimes result in overly-complex products that investors cannot understand, which is “complacent and out of step with what customers want”.

Activist investor increases stake in Ranger Direct Lending fund (AltFi), Rated: A

The LIM Asia Special Situations Master Fund has increased its stake in the £243m Ranger Direct Lending fund, following the portfolio’s move to a double-digit discount.

The Hong-Kong based fund had already invested in the closed-ended portfolio, which invests in a host of online lending platforms, owning less than 4 per cent. Last week it increased its holding to 5.48 per cent (on the 7th July).

Assetz Capital Continues UK P2P Expansion with Scotland Appointment (Crowdfund Insider), Rated: A

Assetz Capital is continuing its strategy of establishing a local presence across the UK with the appointment of Ian Craig as Regional Relationship Director to help manage operations in Scotland. The appointment comes as Assetz Capital says growth in Scotland continues with a target of £50 million in lending (subject to two upcoming completions). Assetz Capital says it is well on its way to becoming the second largest alternative finance lender in Scotland.

Craig will be responsible for helping local Scottish businesses acquire finance through the peer-to-peer platform and ensure borrowing with Assetz Capital runs seamlessly.

P2P lenders helped British Business Bank fund £717m of SME loans last year (P2P Finance news), Rated: A

PEER-TO-PEER lenders were among the delivery partners helping the British Business Bank (BBB) fund £717m of loans to small businesses last year, the firm’s annual report revealed.

The state-backed institution, which has channelled funds through P2P platforms such as RateSetter, Funding Circle and MarketInvoice, facilitated 94 per cent of its finance through banks outside of the ‘big four’ last year, up from 90 per cent in 2015 and 79 per cent in 2014.

The BBB has a key performance indicator of having more than 75 per cent of its finance facilitated through providers other than the four largest banks over five years, so it has already surpassed that aim.


Renaud Laplanche Shares His Vision for Online Lending 2.0 at Lang Di Fintech (Lend Academy), Rated: AAA

In his first public appearance in over a year Renaud Laplanche, the CEO of Upgrade, gave a presentation this past weekend at Lang Di Fintech, LendIt’s annual Chinese conference, in Shanghai. Titled Online Lending 2.0 he laid out his vision for where he thinks the online lending industry is going next.

He talked about how one of the big innovations in Online Lending 1.0 was the introduction of more data into the underwriting process. Ten years ago, which marked the beginning of Online Lending 1.0, this new data allowed more accurate underwriting of consumers. But in Online Lending 2.0 this has expanded dramatically with not just more data but new and better tools available to analyze this data.

The two key data points that are being added in Online Lending 2.0 are location data and free cash flow analysis. We need to adjust underwriting to take into account location because a consumer in New York City has a much higher than average cost of living while a consumer in Greenville, SC has a much lower than average cost of living for example. This is why Debt-to-Income (DTI) is less important than free cash flow today.

Alibaba Affiliate Ant Financial: World’s Largest Fintech Poised For More Growth (Seeking Alpha), Rated: AAA

Ant Financial, Alibaba’s (NYSE:BABA) financial affiliate, is the largest fintech in the world, and leads the pack of the world’s largest fintech unicorns, the top four of which are from China, the largest fintech market in the world: Ant Financial (US$60 billion), Lufax (US$18.5 billion), JD Finance (US$7 billion) (NASDAQ:JD), and Qufenqi (US$5.9 billion).


Payments make up the biggest portion of fintech in China and this is expected to be the same going forward.

Mobile phones function as mobile wallets for about 425 million Chinese, or 65% of all mobile users. This is the highest penetration rate in the world. At 38 trillion yuan (US$ 5.5 trillion) last year according to data from iResearch, China is the world’s largest mobile payments market and is over 50 times bigger than the American market where mobile payments reached US$112 billion.

China’s e-commerce market is expected to continue its upward climb. Online sales represented 16.4% of China’s total retail sales in the first half of 2016 and this is expected to climb to 21.7% by 2020 which should benefit Alipaygoing forward.

Wealth Management

Wealth management is the largest area of fintech after payments.

There are about 325 million Chinese investors in Yu’e Bao, a number almost as big as the population of the United States and the fund has more assets than the rest of the top 10 Chinese peers combined.

The majority of Yu’e Bao users are millennials under the age of 30 and about 99.7% of its investors are individuals, according to its annual report, rather than companies or financial intermediaries as is usually the case at other Chinese money-market funds.

Credit scoring

Data from the World Bank’s Global Findex study revealed that the bank account ownership rate among individuals aged 15 and older is quite high in China (79% in 2014) yet credit usage is relatively low at 14% in 2014.

The People’s Bank of China covers credit profiles for just about 25% (around 350 million) of China’s 1.3 billion population and shares this data only with selected banks. This absence of reliable credit scoring is partly the reason individuals and small enterprises experience difficulty obtaining a loan from China’s state-controlled banking system which tends to favor large corporates and state-owned enterprises.


Credit data from the system will also be used to support lending activities at Ant Financial’s MYbank, an internet-only bank which provides loans to SMEs. Set up in mid-2015, the bank will extend loans up to US$800,000 as well as smaller loans that state banks usually don’t pay much attention to.

China has just 8.1 commercial bank branches and 55 ATMs per 100,000 people. This compares with US and Canada which have 28.2 branches and 222 ATMs per 100,000 people and in Europe where there are 28 branches and 81 ATMS per 100,000 people.

PBOC calls upon fintech firms to help fund system to monitor online transactions (SCMP), Rated: A

China’s central bank has urged financial technology (fintech) companies to help pay for a government-controlled monitoring system to watch over financial transactions on the internet.

Sun Guofeng, director general of the People’s Bank of China’s research institute, said the fast-growing fintech businesses have ratcheted up pressure on authorities to invest heavily in regulatory technology, or regtech, but he pointed out that it would be unfair to cover the costs by using taxpayers’ money.

Merger and acquisition may be the future trend for P2P lending sector (Xing Ping She), Rated: A

Recently, Dianrong announced that the company has purchased Quark Finance, Quark Credit Workshop and its related branches and teams. Before that, the merger has been spread for a long time. The merger seems indicate a direction for P2P lending platforms: small platforms might be realise the compliance requirements by being merged, and big platforms also could expand and increase their market share through the acquisition. Thus, mergers and acquisitions might become the next new wave of the P2P lending industry in China.

PwC: Fintech Survey China 2017 (Crowdfund Insider), Rated: A

There are three main areas of finance that are poised to be irreversibly changed, according to PwC. Consumer banking, investment & wealth management and transfers & payments are becoming pretty much all digital and data driven.

Some high level bullet points on China and Fintech include:

  • 68% of financial institutions expect to increase Fintech partnerships in the next three to five years
  • 85% believe mobile apps are the fastest growing customer channel
  • 71% regard price wars as one of the challenges of Fintech
  • Personal loans are at the top of the list for moving to Fintech over the next 5 years

Download the full report here.

European Union

German fintech factory FinLeap raises EUR39 million (Finextra), Rated: AAA

FinLeap, the startup platform behind Germany’s solarisBank, has secured EUR39 million in equity capital to support its ongoing fintech incubation programme.
Having launched twelve fintech ventures so far – including bank account switching platform FinReach, digital debt management outfit Pair Finance, insurance broker Clark, and Germany’s solarisBank – FinLeap is already active in ten European countries.

Regulating FinTech: the Way Forward (Fexco), Rated: A

On Friday 14th July Brian hosted an event at the European Parliament offices in Dublin entitled ‘Regulating FinTech: the Way Forward’. Speakers at the event were the Minister for Financial Services Michael D’Arcy TD, Neil Ryan, COO Quaternion Risk Management; Derek Butler, CEO Grid Finance; Camille Blackburn, Central Bank of Ireland, and Ruth McCarthy, Director of the FinTech and Payments Association of Ireland and CEO of FEXCO Corporate Payments.

The panel discussed regulatory responses to FinTech services at EU and domestic level, as well as examining opportunities within the FinTech ecosystem in Ireland.

Strong networks, good government supports and the presence of major innovators are enabling Ireland to stay at the cutting edge, and these factors will help Ireland to achieve its IFS2020 target for job creation in financial services.

Bricknode: Reporting To fFnancial Regulators With The XBLR Format Creates Confusion (Mondovisione), Rated: A

Financial institutions of various types are required to conduct periodic reporting to local regulators, like the Swedish Financial Inspection and EU-authorities like the European Banking Authority. Following the financial crisis of 2007/2008 numerous resolutions were past to increase regulations of the participants in financial markets. These initiatives are now being implemented regularly. Both MiFID II and MiFIR are scheduled to be implemented as of January 2018 with extensive reporting requirements and scarce information of how this should be implemented practically. During 2017, financial institutions and FinTech companies were impacted by EU-reporting in practice. One example is the reporting file format called XBLR were a lot of confusion exists.


Fintech Use Reaching ‘Mass Adoption’ Among Digital Consumers (The Financial Brand), Rated: AAA

Findings from the EY Fintech Adoption Index 2017, published by EY, indicate that fintech firms are approaching mass adoption among digitally active consumers. Leveraging digital technology, combined with personalized solutions, fintech firms are differentiating the customer banking experience. Simplicity, clean design, personalization, real-time insights and transparency are the defining components of these new solutions.

The four key themes that emerged from the 2017 EY Fintech Adoption Index were:

  1. Fintech services have reached mass adoption in most global markets
  2. New services and players are driving increased adoption
  3. Fintech users prefer digital channels and technologies
  4. Fintech adoption will continue to gain momentum

According to the EY report, some of the primary strategies used by fintech firms to gain traction include:

  • Offering a service for free or at a much lower cost that traditionally had a cost associated
  • Solve a problem an existing customer base
  • Provide an entirely new service
  • Create word-of-mouth advocates
  • Build a strong brand identity
  • Leverage highly targeted marketing

The most dramatic variance between fintech users and non-users is the ways consumers prefer to manage their lives. According to EY, “64% of FinTech users prefer managing their lives through digital channels, compared to 38% of non-FinTech users. FinTech users are also more likely to be users of non-fintech digital platforms, such as on-demand services (digital taxis, online food, etc.) and the sharing economy (bike and housing rentals).”


Alt Lending platform OxyLoans plans to raise Rs 200 cr debt (MoneyControl), Rated: AAA

The city-based alternative lending platform, OxyLoans, today said it is planning to raise a debt of Rs 200 crore to meet the requirements of borrowers.

He said they have over 240 asset-backed applications from borrowers, and expressed hope to complete the process (raising debt of Rs 200 crore) within six months.

Thatavarti further said that OxyLoans, which has set a loan disbursal target of Rs 156 crore in three years, has facilitated loans to the tune of Rs 64 crore in the last nine months.

This startup is an end-to-end digital platform for lenders and borrowers – TachyLoans (KnowStartup), Rated: A

TachyLoans is an online lending marketplace catering to both Individuals & Small and Medium Enterprises (SMEs). Their platform is based on Peer-to-Peer lending paradigm that uses the proprietary credit decision model designed with some of the best and innovative practices in the financial industry using the cutting edge technologies like Artificial Intelligence & Machine Learning and is built through state of the art technology.

Founded by Brahma, TachyLoans is based out of Bangalore and was established in the year 2016. Brahma brings to the table more than 20 years experience and expertise in Retail Banking, Sales, Marketing and Operations.

When airlines don’t have parachutes, why should P2P lending platforms have LPF? (India Times), Rated: A

The regulations will lay out the corporate structure that each of the platforms would need to follow and most importantly the DOS and Don’ts related to dealing with lenders and borrowers. However, of late, there has been an interesting trend of platforms coming up with a lender protection fund. What does it do? In case a lender loses the money he has extended to a borrower as a loan, the lender protection fund is expected to cover the losses for the investor. On the face of it, it sounds like a good idea, but if you dig deeper, there are several issues.

The flyer is aware of the risk, but he trusts the plane. You have a life vest under your seat for an emergency landing on water, but you do not have an escape pod that can be activated if a flight is about to crash. Similarly, the lender on a P2P site should be able to trust that the lending platform has built a system that can help Lender earn higher returns by mitigating risk. While a P2P platform cannot shirk its responsibilities when it comes to investor protection, having a fund to mitigate losses is not the answer. Proper systemic safeguards and strong ethics should alone suffice.

Launching LPF would in some ways signal that a platform does not have confidence in its own credit evaluation and risk-mitigation system.

Paytm invests in Mobiquest (e27), Rated: B

India’s leading digital payments and m-commerce company Paytm has made an investment in loyalty app developer Mobiquest. The funding amount was not disclosed.


Fintech non-profit launches database for financial technology startups in Singapore (Tech in Asia), Rated: AAA

The Singapore Fintech Association (SFA) announced today it has created an online directory for fintech companies based in the city-state. The database contains a short description of each company and information about its founding team, funding status, and business model.

Currently listing around 300 startups, the database is free to use and data is maintained by the companies themselves. The directory looks similar to Crunchbase and Tech in Asia’s own startup database, but it’s exclusive to fintech.

The SFA built the directory in collaboration with US data company Let’s Talk Payments and its Medici platform, which provides information and resources about the fintech industry.

South Korean FinTech Firms To Offer International Money Transfer Services (ETH News), Rated: A

According to The Korea Heraldofficials at South Korea’s Financial Supervisory Service (FSS) announced last week that they expect approximately 40 FinTech firms to provide international money transfer services starting August 15.

Per Yonhap News Agency, South Korea’s international money transfer market currently totals approximately 10 trillion won ($8.7 billion). Opening the market to FinTech firms will encourage competition and drive down costs to consumers since the companies can offer money transfer services at much lower prices than traditional banks.

Single transfers via FinTech firms will be capped at $3,000, and individual annual limits will be set at $20,000. For FinTech firms to qualify for the FSS permit, they must possess 2 billion won ($1.77 million) and a debt-equity ratiobelow 200 percent.


George Popescu
Allen Taylor

Event: Bank and Non-Banks: Competition or Partnership

Lending Times Daily News analysis and data for p2p and marketplace lending

When? Tuesday, April 18, 2017 6:00 PM to 8:00 PM Where? Manatt Phelps & Phillips 7 Times Sq ,22nd floor, New York, NY Details Bank and Non-Banks: Competition or Partnership Lending Times and Manatt Phelps & Phillips will host a 45 min panel discussion on the recent updates on the bank and non-bank competition or partnership […]

Lending Times Daily News analysis and data for p2p and marketplace lending


Tuesday, April 18, 2017
6:00 PM to 8:00 PM


Manatt Phelps & Phillips
7 Times Sq ,22nd floor, New York, NY


Bank and Non-Banks: Competition or Partnership

Lending Times and Manatt Phelps & Phillips will host a 45 min panel discussion on the recent updates on the bank and non-bank competition or partnership topic and their impact for participants in the marketplace lending sector.

Topics will include examination of different partnership structures through examples, pros and cons of diverse partnership structures, strategic considerations for both sides and discussion of where this dynamic is likely to lead the sector in the next few years.


• 6pm – 6:30pm networking, light cocktail

• 6:30pm – 7:30pm panel and Q&A

• 7:30pm – 8pm networking, light cocktail



Brian Geary, Senior Director, Bank Partnership, OnDeck

Jeff Zin, Head of Capital Markets, ApplePie

Ram Ahluwalia, CEO and Founder, PeerIQ

Brian Korn, Partner, Manatt Phelps & Phillips LLP

Further panelists to be announced among the top bank and non-bank institutions.


George Popescu , Editor In Chief and Founder, Lending Times


Quick reaction to the OCC’s Fintech Charter

Quick reaction to the OCC’s Fintech Charter

Today the Office of the Comptroller of the Currency has announced “Exploring Special Purpose National Bank Charters for Fintech Companies” . The details of the announcement can be found here. Brian Korn, attorney at Manatt, Phelps & Phillips, LLP , has shared with us the following thoughts on this special purpose charter that are relevant […]

Quick reaction to the OCC’s Fintech Charter

Today the Office of the Comptroller of the Currency has announced “Exploring Special Purpose
National Bank Charters for Fintech Companies” . The details of the announcement can be found here.

Brian Korn, attorney at Manatt, Phelps & Phillips, LLP , has shared with us the following thoughts on this special purpose charter that are relevant for the recent fintech charter comment request related to marketplace lenders:

Brian Korn says:

  1. “Is the charter optional?  He assumes a company can continue to use third-party lenders like banks or obtain state licenses or do without a license if not required.”
  1. “Can they get access to Fed discount window?  Can they pick a state and use the usury limits of that state? “
  1. “Madden would not apply if the loan is held by a national bank.  True lender would not apply either since the fintech firm would itself be a “non-depository bank.””
  1. “It must be fully-preemptive- states are going to fight this harder than the Reg A tier 2 preemption because it effectively puts the Cal DBO, NYS DFS, and other agencies out of business, depending on cost and user friendliness.”
  1. “Short comment period- Jan 15.  I expect this gets extended, but don’t see soon-to-be Treas. Secretary Mnuchin fighting this too hard, unless Goldman is against it  because they went and obtained a NY State license.”
  1. “Time to obtain a charter, review requirements, and capital requirements are all TBD.  If they are too high, fintech will not bite.  Fintech will always opt for the regulatory path of least resistance, all other things including enforcement risk being equal.”
  1. “Curry notes that federal banking laws apply to banks generally- other than FDIC compliance which exempts from CRA.  It would be difficult for most fintech firms to comply with the Reg W affiliate requirements without significant restructuring. Platforms should be prepared to fully comply with federal banking laws, including strict affiliate transaction prohibitions”
  1. “Curry’s term expires in April 2017.  A new Comptroller will have to bring this to life.”

We look forward to more in-depth analysis in the coming days. In all cases, we look forward to this step in the right direction which adds another regulatory path for marketplace lenders.

George Popescu


Growing together: Collaboration between regional and community banks and fintech

Growing together: Collaboration between regional and community banks and fintech

Table of contents Methodology Foreword Executive summary Data overview Chapter 1: Friends or foes? Chapter 2: The regional + community bank perspective Chapter 3: The fintech view Box-out: The potential of blockchain Chapter 4: Dealmakers’ take Conclusion Methodology In Q3 2016, Mergermarket surveyed 75 senior executives in the United States to understand their strategy and […]

Growing together: Collaboration between regional and community banks and fintech

Table of contents

  • Methodology
  • Foreword
  • Executive summary
  • Data overview
  • Chapter 1: Friends or foes?
  • Chapter 2: The regional + community bank perspective
  • Chapter 3: The fintech view
  • Box-out: The potential of blockchain
  • Chapter 4: Dealmakers’ take
  • Conclusion


In Q3 2016, Mergermarket surveyed 75 senior executives in the United States to understand their strategy and views regarding collaboration between banks and fintech. Respondents were split across regional and community banks (50%), fintech companies (25%) and private equity firms, venture capital firms and investment banks (25%). For the purposes of this report, fintech includes but is not limited to online and mobile banking technology, marketplace lending platforms, online and mobile payments technologies, robo-advisors for wealth management, virtual currencies and blockchain. For a fintech firm to participate, it was required to have been in operation for at least two years.


As the fintech revolution advances, U.S. regional and community banks stand at a critical juncture. On one side is an on-ramp to the fintech superhighway—a road that is built for great speed but has significant perils as well. On the other side is the old, well-traveled bank road—one that is familiar and steady but on which institutions risk being left behind.

Thousands of banks are turning onto the fintech freeway. As of June 2016, there were around 6,000 banks in the U.S., and the majority of these are regional and community banks that serve millions of people who want services on their computers, tablets and phones. Fintech startups offer an array of tools and technology that these customers increasingly demand.

In some cases, fintech companies are trying to replace banks with their online offerings. More often, however, their technology is tailor-made to help banks expand and improve their businesses. Take a fintech firm like eBankIT, which produces digital platforms for banks that include account management software and an online banking app. Then there are internet lenders such as Kabbage, which has already funded more than US$1bn in loans by itself, that are beginning to partner with traditional banks.

Many smaller fintech firms also rely on the liquidity provided by banking partners. “Fintech firms that don’t partner with banks are often at risk when big banks come into their niche, or when market forces turn against them and they don’t have deposits to fall back on,” wrote Telios Demos in a Wall Street Journal column in September 2016.

These technologies offer major advantages to banks that adopt them successfully. Challenges loom as well, however. Banks need enough knowledge of the industry to identify proper partners for their size and market. Perhaps most importantly, they must be careful to abide by strict legal requirements when it comes to licensing and disclosure of customer data.

In order to better understand the dynamics between fintech and regional and community banks, Manatt conducted a survey of C-level executives from the two groups in partnership with the financial intelligence firm Mergermarket. The results reveal high hopes for the future of collaboration between the two. Banks, in particular, are eager to embrace the opportunities presented by technology. Senior executives from private equity firms, venture capital funds and investment banks were also surveyed, and they expressed optimism about the potential for partnerships and acquisitions between the two sides.

At the same time, all three groups noted flash points to watch out for. Banks are hyperaware of regulatory risks and therefore demand high standards from fintech companies when it comes to compliance. On the fintech side, firms are concerned about the challenges that result from the small scale of regional and community banks, especially their limited customer bases and idiosyncratic technical systems. Dealmakers largely share the concerns of both sides, emphasizing the importance of legal issues and the complexity of integrating fintech functions at banks.

For both banks and fintech firms to succeed in the fast-changing world, working together will be essential. Locating the right avenues of cooperation—and navigating the pitfalls along the way—requires an understanding of the nuanced relationship between the two sides.

Executive summary

Optimism reigns among banks. Despite the rapid pace of change in the world of finance, the regional and community banking community has a positive view of its role in the future of lending. They are willing to experiment and are aware of the need to adapt to a new technological environment.

Banks and fintech have high hopes for collaboration. The vast majority of regional and community bank respondents are already collaborating with fintech or plan to do so in the near future. On the fintech side, working with such banks is seen as an opportunity to become established in the industry, legitimize their operations in the eyes of skeptical consumers or expand their market share. Some fintech companies are also in need of capital and see the bank’s liquidity as a potential benefit.

Mobile services are critical to banks’ futures. Smartphones are ubiquitous in the modern age, and people young and old expect to be able to access their banking services while on the go. Creating a convenient and reliable mobile platform is one of the key opportunity areas for banks and fintech to collaborate and an important way for banks to retain existing customers as well as attract new ones.

Cybersecurity must be a priority. The threat of data breaches is part and parcel of digital services, and both banks and fintech firms know how dangerous they can be to their businesses. As a result, the two sides must pay careful attention to the issue when preparing to collaborate.

Structuring legally compliant relationships is essential.  Heavily regulated financial institutions must ensure that structuring any relationship with a fintech firm will meet the scrutiny of state and federal regulators who routinely examine banks for compliance with applicable safety and soundness standards and strong internal controls. Increasing regulatory attention on fintech firms means that those businesses must also enter any partnerships with banks in a careful and measured manner that will withstand consumer and regulatory scrutiny. In addition, in certain cases, prior regulatory approval may be required before a partnership can be finalized.

Data overview

Dealmaking in the U.S. financial sector has remained consistent and robust for the last half-decade. While M&A value has dipped in North America this year from the highs of 2015, deals among financial companies have declined only slightly in volume—from 146 deals in H2 2015 to 130 in H1 2016. Meanwhile, financing to the burgeoning fintech sector has gradually ramped up over the last five years to incredible heights. The total value of funds raised by venture-backed fintech firms reached US$7.4bn in the first half of 2016, just a slight decline from the previous high of US$7.8bn in H1 2015.

The implication of the data is clear: banks are consolidating, while fintech firms are growing in number. Since 2011, the U.S. has seen the number of banks shrink from 7,357 to 6,058, as of June 2016. This consolidation is largely concentrated in the mid-market: more than 56% of the 1,082 U.S. bank acquisitions over the last five years have been valued at US$250m or less.

At the same time, the role that fintech plays in the financial industry is expanding rapidly. Online marketplace lenders (MPLs) such as LendingClub and Prosper have become widely known by the public and have loan volumes in the billions of dollars. Payments processed by firms like Square and Stripe are used by tens of thousands of businesses.

As banks seek a competitive edge by adding fintech services to their offerings, partnerships have become increasingly common. Radius Bank has teamed up with online lender Prosper to help make small business loans, a model that has been duplicated by other banks and lending platforms such as Regions Bank and Fundation. Mergers between the two sides remain rare.


[Note: VC data comes from CB Insights and M&A data from Mergermarket. According to Mergermarket classification, the financial services industry includes fund managers, insurance companies, investment brokers, investment banks, and rental and leasing companies in addition to commercial banks.]

Chapter 1: Friends or foes?

Regional and community banks are the backbone of the U.S. banking industry. And just like larger institutions, these mid-sized and smaller banks see the rise of fintech with clear eyes. While they recognize the disruptive potential of new technology, they often view the situation with real optimism—and the feeling on the fintech side is mutual. More than half of our bank respondents (54%) and fintech respondents (58%) see each other as potential partners.

On the bank side, respondents cited a wide range of reasons for viewing fintech in a positive light. They said fintech can improve their ability to offer online services for their customers, decrease technology costs and allow them to offer lower lending rates to consumers and businesses. The CEO of one Southeastern community bank explained that fintech had created wholesale changes in their way of doing business: “Fintech is surely a potential partner to our bank. Technology has turned around our entire operating environment and driven many opportunities to improve our products and services. It has also helped us improve our customer base and satisfaction levels.”

Fintech respondents pointed out that partnerships between the two sides are often a natural fit, given that banks have a built-in customer base and fintech firms have technology that can upgrade banks’ potential. “Financial technology companies have helped banks improve their services overall,” said the CFO of a peer-to-peer lending service. “Banks have taken advantage of the low costs of fintech services, and this has enabled many regional and community banks to develop and offer better options to their customers.”

A minority of respondents on both sides believe that fintech is both a threat and a potential partner to banks. Indeed, there are cases in which even a single fintech firm can represent both a threat and a partner over time. Transferwise, a firm started in 2011 that offers cut-rate fees for sending money abroad, started out by using banks as partners throughout the U.S. due to the requirement of a state license to operate. As the company has grown, however, it has increasingly obtained its own licenses in order to cut down on costs.At the same time, it is now forging new partnerships with banks by aiming to integrate its service into banks’ online apps. These types of hybrid models are increasingly being used across the industry.


An urgent priority

A rather different picture emerges when it comes to the importance of collaboration for each side. For bank respondents, a large majority view working with fintech as “essential” (43%) or “very important” (43%), whereas just 16% of fintech respondents see it as “essential” to work with regional or community banks and 42% see it as “very important.” Over one-third of fintech participants (37%) said they believe it is “not important” to work with regional and community banks, arguing that they can thrive by pursuing other market segments or by targeting regional customers through different means.

In some cases, bank respondents said the situation is quite urgent, arguing that they run the risk of losing customers if they do not move quickly to collaborate with fintech. “Competition in the financial services industry has increased significantly,” said an executive vice president at a Northeastern regional bank with more than US$6bn in assets. “Every institution is trying to capture more customers by offering competitive products, especially digital ones. So it is absolutely essential to embrace financial technology.”

Another respondent, the CFO of a Southeastern regional bank, said the cost savings of fintech services were vital as well. “The most essential component is the reduced costs. We have seen a significant reduction with fintech,” he said.

Several fintech executives said their focus remained on enterprise clients or direct-to-consumer services, and they see little need to partner with small or mid-sized banks. However, others said banks played a key role in expanding their customer base. “We have a large database of banks we work with, and working with regional and community banks helps us extend our market reach,” said the CFO of a fintech firm with a valuation above US$3bn. “They enhance our business and the services we offer, as well as get us better returns.”

The future of banking

Divergence could also be seen between the respondents in their visions of the banking industry ten years from now. While nearly nine out of ten bank respondents (88%) think traditional banks will partner with fintech in a collaborative environment, only 48% of fintech respondents gave the same answer. More than a third (37%) of fintech respondents think the industry will consist of just fintech companies and a few large banks in a decade’s time. Dealmaker respondents, meanwhile, fell in between—57% think a largely collaborative environment will prevail, while 16% foresee a few large banks surviving and fintech serving all other niches.

No one has a crystal ball, of course but a body of evidence suggests that, over the medium term, the mutual benefits of collaboration between banks and fintech mean that partnerships will continue to blossom. In August 2016, Moody’s released a report detailing the benefits that partnerships between banks and marketplace lenders (MPLs) can achieve, both for themselves and for small businesses. Banks can achieve greater lending volume and MPLs can reach more customers, it said; small businesses can get funding more quickly than in a traditional loan process. A similar conclusion was drawn by Federal Reserve Bank of Atlanta analyst Robert Canova in a March 2016 article examining the gains achieved by banks and fintech when working together.

The COO of a Midwestern community bank predicts a future in which fintech is active and all banks will be working with technology to serve their customers better. “There is no doubt that in the coming 10 years, the banking industry will see a lot of involvement of fintech companies,” he said. “Banks are ready and willing to use these services.”

Chapter 2: The regional + community bank perspective

Regional and community banking leaders are largely optimistic about their prospects for collaborating with fintech, as Chapter 1 revealed. However, being optimistic and being well-prepared do not always go hand in hand. Banks are clearly enthusiastic about the opportunities offered by fintech, but they are not all confident in their ability to take advantage of them.

In our survey, nearly half of bank respondents said their institutions were only somewhat prepared (43%) or somewhat unprepared (5%) to address the challenges and opportunities presented by fintech. The concerns of bank respondents ranged widely, from needing to boost their security systems and third-party due diligence to requiring a significant upgrade of their training procedures. In recent years, the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) have released a number of regulations focused on the need for thorough due diligence on third-party vendors, as the risk from these vendors has increased substantially.

The CEO of one Southeastern community bank said his institution was somewhat unprepared for dealing with fintech, and admitted that they had a long way to go: “We would have to restructure all our processes, and push management and employees through training in order to get accustomed to the new technology. But we foresee a slowdown in our business if we do not find new solutions to implement. So currently I would say we are unprepared, but on the way to getting prepared, for the necessary changes.”

At the same time, most respondents said their board of directors had taken concrete steps to aid in the effort. More than eight out of ten (84%) said members of their board had attended conferences to learn about fintech, and the same percentage said directors had held meetings with fintech companies to discuss the potential for collaboration. A sizable majority (59%) said their boards had also conducted a formal study of the opportunities and risks associated with using fintech.

Several respondents said their board had significant ties with and interest in technology. The CEO of one 100-year-old community bank said their board had a formal process in place to evaluate and adopt new technologies as they appeared: “Our board has prepared a framework and follows it effectively to ensure we keep up with technological advancements in order to retain our position in the market. They regularly visit technological conferences and events and interact with technology experts to better understand the limitations and opportunities that exist.”

State of play

A large majority of regional and community bank respondents (81%) are already working with fintech companies. In most cases, the collaboration takes the form of a formal partnership or joint venture (63%), or banks use the technology firms as service providers (50%). Only a small minority have done an M&A deal with a fintech player (10%).

Some respondents said they prefer the use of service providers because this method of collaboration gives them a chance to get better acquainted with how the firms operate and how valuable their services are. Down the line, they said, an M&A deal or a more formal partnership may make more sense. In other cases, respondents who only use fintech service providers said they did not have sufficient capital to make an acquisition or start a joint venture.

One of the few survey participants whose bank had merged with a fintech firm said he was quite pleased with the deal’s outcome, saying that it spurred gains in efficiency and allowed his institution to seamlessly integrate the firm’s services. “We gained a lot of benefits in this way,” the Midwestern bank CTO said.

In general, acquisitions of fintech firms by mid-sized banks are uncommon. One of the only recent examples came in September 2015 with North Dakota-based MetaBank buying tax software provider Fort Knox for US$50m. More often, larger institutions make the investments in or purchases of fintech companies, such as the deal in April 2015 struck by a consortium led by JPMorgan Chase to acquire a US$165m stake in Prosper. In certain instances, formal regulatory approval may be required prior to consummating a partnership or other form of relationship with a fintech firm.  Depending on the circumstances, close counsel with advisors and regulators prior to commencing a transaction may be appropriate.

The essential tools

The difference in banks’ usage of various fintech services is stark. The vast majority of respondents use an online banking service provider (97%), payments technology (87%) and mobile banking tools (80%), while other services are less widespread. Just 40% of bank participants said they take advantage of online lending platforms, while 13% use robo-advisors for wealth management and 7% accept virtual currencies. A tiny percentage of respondents (3%) said they use an automated dispute management service.

Most respondents gave a simple explanation regarding why they use the services they do: They are the ones in highest demand by their customers. “These are the services we have opted for based on customer demand, as well as to stay competitive in the market,” said the CFO of a West Coast regional bank.

Indeed, digital payments as well as online and mobile banking have become virtually essential for modern banks, as customers expect to be able to manage their accounts remotely. Companies such as Computer Services, Inc. (CSI) and Ebanq provide software suites that make it relatively easy for banks to launch and maintain such services.

Online lending platforms have skyrocketed in popularity in recent years, but regional and community banks are only beginning to collaborate with them in large numbers. Part of the reason is that such platforms often act as direct competitors – the likes of LendingClub and Prosper boast about their ability to cut through red tape that can be experienced at banks. Data security remains a concern for many bank respondents as well.

Some said they planned to adopt online lending capability but simply hadn’t launched it yet. “We are in discussions about using an online consumer lending platform,” said the COO of a Midwestern community bank. “We are facing certain issues still, but once they are resolved we will use it.”

Waiting to act

The small minority of respondents who are not working with fintech (19%) called out two issues in particular as reasons why: the security of bank and customer information and the high risk of investment. They argued that the challenges involved in working with fintech justified their caution. Nonetheless, the vast majority said they do plan to collaborate with fintech either in the next 6-12 months (14%) or the next 12-24 months (71%).

Most respondents said their institutions were aware of the benefits of fintech, but they wanted to spend additional time vetting potential partners. “We are still a small bank compared to others, and we have adequate systems to handle our current digital requirements,” said a senior vice president for operations at a West Coast community bank. “But we are expanding our interest in digital technology, as we have identified some areas where we could attract new customers with added features.”

Perks and pitfalls

As consumers increasingly rely on their phones and tablets, banks are concerned about mobile functionality. More than half of our participants (59%) said better mobile services represented one of the main benefits that fintech can offer them—the most-cited response. Lower capital expenditures (44%), a lower cost of doing business (42%) and enhanced brand reputation (36%) were also frequently named by respondents as benefits that fintech can provide.

The CFO of a Southwestern community bank with more than US$500m in assets said they chose a well-established fintech firm partly because they felt it would improve the bank’s reputation. “When we first thought about working with fintech, we knew we wanted to work with a well-established firm, since it would have more potential than a start-up,” he said. “We figured this would also help our brand in the market.”

An executive vice president at an East Coast regional bank noted that the use of online banking had allowed them to save significantly on capital expenditures, since they have a lower need for new branches and personnel.

In terms of risks linked to working with fintech, two in particular stood out for respondents: the challenge of hiring qualified personnel to make the collaboration effective (51%) and legal/regulatory issues (41%). An equal proportion of respondents (27%) also expressed concern about cultural fit, cybersecurity, high investment risk and integration challenges.

Regulation of fintech is still in the early stages. In March 2016, the OCC floated the idea of establishing a framework for fintech firms, but the rules were still under discussion as of September 2016. Even if the OCC did create a federal charter for fintech companies – which is what many of them want – it remains unclear how other regulators would fit into the picture.

There are also regulatory restrictions on investments made by banks in third-party companies, including fintech partners, such as limitations on the percentage of equity they can own and whether they need regulatory approval to make the investment. “The biggest risk we’ve faced with regard to fintech has been changing regulations,” said the CFO of a Southeastern regional bank with locations in nine states. “As a regional bank, we face a lot of regulatory problems that interfere with the types of deals we can carry out. They limit the amounts we can invest in companies.”

Another regional bank CFO went into detail regarding the technical challenges involved in fintech collaboration. “There are many complexities integrating systems, as we use 256-bit encryption along with other software that makes it difficult for fintech companies to work with us,” the CFO said.

Case study: Fostering collaboration between a bank and fintech

Digital finance is a new world. It is unfounded, complex and hard to navigate, especially when legalities are involved. Over the past year, our clients have had to grapple with weekly headlines from regulators, legislators and the courts while trying to execute business plans and scale operations in new, more effective ways. With increased scrutiny and multifaceted collaborations, this is not easy. However, with the right team in place, it is possible.

Manatt’s client, Cross River Bank, a New Jersey chartered bank, is just one example of a firm that has fully embraced fintech. Cross River works closely with marketplace lenders to originate loans for borrowers who apply via online platforms such as Affirm, Rocket Loans, Peerform, Borrowers First and Best Egg.  After originating and funding a loan, Cross River often sells the loan back to the online platform who keeps it on its own balance sheet. Many loans remain on Cross River’s balance sheet, which gives it “skin in the game.”  Meanwhile, using banks like Cross River helps originators, since FDIC-insured depositaries are able to export the maximum interest rate of their home state to other states. With all these technicalities, however, come the regulators. This business model and partnership has become a prime target for the FDIC, CFPB, Department of Treasury, FTC and SEC, with recent course cases such as Madden v. Midland Funding and Bethune v. LendingClub and WebBank having a significant impact on all market participants.

With regular examination by the FDIC and state banking authorities, Cross River is subject to frequent compliance risk reviews. They need to not only understand the evolving regulatory landscape but also how to charter these waters with a steady hand. So they engaged Manatt to assist with some of the requisite activities inherent to such partnerships and to provide guidance on pressing market issues. With our team’s guidance, Cross River is enhancing its customer process to make it more than a pure pass-through entity, with greater risk retention and additional roles that will last through the life of a loan. Further, since any one of the Cross River’s platform partners could potentially put the bank at risk for disciplinary action, our team carefully monitors legislation and legal developments. We proactively advise Cross River of any changes that need to be made to the underwriting framework or online platforms.

In the end, by combining Manatt’s experience and knowledge, we are able to offer cross-functional solutions that employ best practices with state-of-the-art commercial advice while representing Cross River on all aspects of regulatory risk and development. And Cross River isn’t the only case. Manatt has been extremely active as we engage in and counsel our clients to succeed in this rapidly evolving ecosystem.

Due diligence + integration

When it comes to due diligence, vetting a fintech partner for legal and regulatory issues was deemed the most challenging part of the process by 46% of respondents. About one-third (32%) said cybersecurity diligence was toughest and 22% said financial analyses were most difficult.

According to the CFO of one Southeastern community bank, all aspects of the diligence process serve an important purpose. “I give more importance to regulatory aspects, but all of these are important,” he said. “All three are necessary to provide complete information about the fintech company. Scrutinizing only the security infrastructure and framework would not be sufficient, for instance.”

Structuring partnerships and relationships between regional and community banks and fintech companies requires internal and external advisory teams that appreciate the complexity associated with such partnerships and can navigate the regulatory landscape associated with those new relationships. Legal knowledge is critical, including working with firms who have strong relationships with regulators and can reach out both locally and in Washington, D.C. to key officials in order to gain insights about process and the latest regulatory and legislative developments.

As for which regulatory issues are most pressing, a roughly equal proportion of respondents called out four: the security of bank information (46%), the security of digital payments (43%), customer bank privacy (43%) and anti-money laundering compliance (AML) (41%). Respondents indicated that any loss of information would pose a critical danger to their reputation. “Transactions have to be kept confidential — there is no scope for any loss of customer or client identity, nor their transactions,” said the CFO of a regional bank with more than two dozen locations in the Southeast. “If this were to occur in any manner, it would cost us big time.”

Indeed, banks across the spectrum are bolstering their cybersecurity budgets to cope with the rise in hacker threats. Overall in 2015, financial services companies raised their security budgets by an average of 14%, according to a PwC report.[1] And new types of threats are appearing all the time; as many as 12 banks were investigating possible illegal SWIFT transfers in May 2016 after cyberthieves stole US$81m from the Bangladesh central bank using this method.[2]

In our survey, the data security measures considered most important by respondents when collaborating with fintech included partnering only with well-established firms (60%) and strictly limiting the scope of the collaboration (60%). For instance, an executive vice president at an East Coast regional bank said: “Data security is of the utmost importance in the banking sector. And with this, it is necessary that we maintain some specific limitations when collaborating with fintech, so that our confidential data is not mistreated in any manner and there is no data loss.” A majority (52%) also said performing extra due diligence on potential partners was an important step to take.

The CFO of a Midwestern regional bank said his institution was willing to accept an additional cost burden to ensure safety and reliability when it comes to a fintech partnership. “We do not mind paying slightly more but would prefer to partner with a well-established company with a good reputation,” he said. “We need their backing and would be at ease knowing that our information is safe. We have an IT team and infrastructure, but if we had to partner with another company, we would increase our team’s capabilities and hire a few more talented and experienced people to help us.”

Chapter 3: The fintech view

In recent years, fintech has gone from being a highly specialized niche to becoming a household name. As the category has grown, so have the types of companies that fall under its umbrella. These include everything from mobile payments services such as Square and iZettle, to personal wealth tools like Personal Capital, as well as more esoteric offerings such as bitcoin exchanges and even an investment social network. Many, but not all, of these firms find value in collaborating with traditional banks.

Among the fintech executives interviewed for our survey, just over half (53%) are currently working with regional or community banks—a significantly lower percentage than the 81% of banking respondents who are working with fintech. Moreover, around 90% of fintech participants who are not collaborating with regional or community banks say they either aren’t planning to in the future (56%) or remain unsure if they will or not (33%).

Respondents who are not working with regional and community banks gave a variety of reasons, including that the burden of accommodating banks’ technical and regulatory requirements would be too onerous; the potential profitability of such collaboration would be too low; their firm is a direct competitor to regional and community banks; and their firm has adequate capital and infrastructure to grow without partnering with more traditional institutions.

“We do not feel it would be beneficial for us to work with a regional or community bank,” said the chief development officer of a financial software firm worth over US$1bn. “It would disrupt our business – accommodating their requirements would be a big challenge. Their exposure is also limited, so it would not add much value to our growth and expansion.”

It should be noted that our survey focused on well-established fintech firms, as opposed to start-ups—to qualify for our survey, each fintech company had to be in operation for at least two years. For younger fintech firms, the benefits of being able to rely on a bank’s liquidity are often more important.

One respondent, the head of partnerships at an online brokerage, said his company had only recently begun operating actively in the marketplace but planned to collaborate with regional and community banks in the future. He said the company was still deciding what forms of collaboration would be most profitable for both sides.

Flexible arrangements

A substantial majority of fintech respondents who are collaborating with regional or community banks act as third-party service providers (70%) or have formal partnerships or joint ventures in place (60%). No fintech respondents said they had merged with, acquired or been acquired by a regional or community bank.

Many respondents said third-party relationships were preferable due to their flexible nature and the advantages of being able to work with a variety of different institutions. “We are always free to move on …,” said the CFO at a payments firm.

Partnerships between banks and fintech abound, although most of them are not publicized. One widely known example is the deal struck between LendingClub, the embattled marketplace loan platform, and BancAlliance, a network of more than 200 regional and community banks, to provide co-branded loans. Other lending platforms, such as Prosper and OnDeck, have relationships in place with larger institutions.

When it comes to working with regional and community banks, the CFO of an online financial advisory firm noted that the form of collaboration is often dictated by the banks. “With different community and regional banks, we have different types of collaboration,” he said. “This is not solely in our hands. If it were up to us, we would typically choose a formal partnership, since these are more profitable for us.”

 Benefits and risks

Three items in particular stood out for fintech respondents when it came to the benefits of collaborating with banks: gaining a partner with market credibility (64%), opening access to customers in new geographies (55%) and having a partner with an established legal footprint (45%). For a technology firm seeking to break into the highly regulated world of finance, these issues can be crucial to the success of the business.

Indeed, partnering with institutions that have long histories and solid customer bases is a tried-and-true formula for a start-up to accelerate its growth. Online lending platforms, in particular, have taken this path. “Marketplace lenders enjoyed explosive loan growth in 2015, but instead of cementing the industry as a disruptive threat to banking, the online companies turned toward partnering with retail banks,” SNL Financial wrote in a December 2015 article.

Interestingly, just as banks often want to improve their brand by adopting fintech services, some of our fintech respondents said collaboration with banks would help their reputation. “Doing business with regional banks and community banks has helped us improve our market presence and has allowed us to get more clients,” said an executive vice president at a digital payments firm. “This has had a positive impact on our value and image.”

As for the challenges of working with banks, fintech respondents pointed to cybersecurity risks (47%) and financial downsides, including the potential for inadequate returns from the banks’ customer base (47%) and excessive overhead to integrate their functions (42%). Overall, these results point to one of the main shortcomings that fintech firms see in regional and community banks: their smaller scale.

This scale can affect integration issues, since fintech firms may have to come up with bespoke solutions for connecting to the banks’ systems, as well as potential profitability, since regional and community banks by definition have fewer customers than large institutions. The fact that many of the banks are in smaller communities means that culture could be a sticking point as well.

The CFO of one financial software firm was quite blunt in describing the challenges involved. “We have a very strict corporate culture and are not very flexible in the way we operate – this will cause clashes when partnering with a regional or community bank,” he said. “The IT systems of many regional and community banks are also not very secure, which makes integrating systems an expensive and difficult process. This makes it risky to partner with them.”

Collaborating with fintech can, however, serve as a useful carrot for banks to overhaul their technical infrastructure. “When we work with community or regional banks, we usually get them to upgrade their systems and have to help them make necessary changes to the company,” said the CFO of a billing software firm.

Box-out: The potential of blockchain

The future for regional and community banks will undoubtedly be influenced by the increasing role technology plays both in back-end and customer-facing roles. However, the pace of these changes will take time, and in different parts of financial services, they’re expected to change the game at different paces.

The financial industry fully expects blockchain to become a key feature across regional and community banks. For the most part, however, constituents expect its adoption to be gradual. Sixty-eight percent of dealmakers surveyed expect these institutions to adopt blockchain in 18 months or later from now, while more than half of banks (62%) and fintech executives (53%) feel the same.

Regional and community banks acknowledge the importance of blockchain. However, the expense of implementing new technologies, particularly for smaller entities, will cause a delay in its use. “A lot of firms and institutions have already understood the importance of blockchain and are looking forward to using it,” said the CFO of a regional bank. “The required finances, manpower and other costs all need to be taken into consideration though, after which this will be implemented.”

Fintech respondents are more optimistic regarding earlier implementation, with 47% believing blockchain will be adopted within 18 months. A key driver for this will be banks trying to keep up with the needs of their depositors. “The increasing demand for blockchain technology is driven by the rising demand of online accessibility to customers for all their banking transactions,” said the CEO of a fintech company. “It helps create real-time data, and this is highly sought-after by banks.”

Signs of this adoption are already being seen across some banks. Last year, for example, Kansas-based CBW Bank launched ONE Card, allowing customers to receive funds and settle balances in real time, in partnership with cryptocurrency company Ripple Labs. This year, the bank received recognition for its work in innovation, being named the 2016 Model Bank for its excellence in corporate payments and infrastructure modernization by research firm Celent.

The applications of blockchain won’t be limited to just real-time transacting for customers. In particular, regional and community banks believe blockchain will have a major impact on transacting with larger institutions (92%). Fintech executives largely think the impact will be felt in the area of creating bespoke virtual ledgers (68%), a sentiment shared by dealmakers, with 95% agreeing that creating ledgers is a primary use.

Speed and security are cited by respondents as the key areas where blockchain can improve smaller banks’ business dealings with larger institutions. “Regional banks will use these technologies to accept digital currency deposits and to help send this capital,” explained the CEO of a community bank. “It will also help them share information and make transfers with larger institutions much simpler.”

Chapter 4: Dealmakers’ take

The investment community is actively involved in forming fruitful relationships between banks and fintech. Private equity and venture capital firms play an outsized role in both industries and have a broad view of the ways in which each side can benefit the other, while investment bankers know the pulse of dealmaking between them.

All of our dealmaker respondents have worked on collaboration of some kind between regional or community banks and fintech firms. By far the most prevalent form of collaboration is formal partnerships, which 79% of respondents said they are working on, compared to 63% who are negotiating potential M&A deals and 42% who are exploring joint venture possibilities. “We are currently advising a fintech company that plans to collaborate with community banks in the near future,” said a managing director at an investment bank that advised on 15 financial services deals in H1 2016. “We believe formal partnerships or using fintech as a third-party service is a promising arrangement for both sides.”

One type of M&A deal on the table for banks is the acquisition of minority stakes in fintech firms, although there are regulatory restrictions on these types of deals that banks must keep in mind. Thirty-seven percent of dealmaker respondents said regional and community banks had expressed “high” interest in making such acquisitions, while 53% said they had seen “moderate” interest. “Many regional banks have seen a need to improve their technologies and services, and they have noticed the potential of investing in these services in the long run,” said a managing director at a private equity firm with both bank and fintech assets in its portfolio. “They are also investing in these companies when they are not very old and their valuations are lower, in order to reap the benefits later as they grow.”

Pros and cons

The views of dealmakers regarding the benefits and risks of collaboration largely coincide with those of the banks and fintech firms themselves. This would seem to confirm the objective importance of these priorities when it comes to cooperation between the two sides.

Thus, dealmakers believe lower capital costs (53%) and expanded mobile banking functions (53%) are the most vital advantages fintech can offer regional and community banks. By comparison, 58% of bank respondents named mobile banking as a key benefit and 44% cited lower capital costs as another. “Fintech companies can help regional banks improve their operations and systems, and this will lead to fewer risks,” said a managing director at a PE firm with several banks in its portfolio. “It will also lead to lower capital expenditures, as online and mobile services reduce the need for customers to visit bank branches.”

Similarly, dealmakers envision many of the same benefits for fintech firms as the fintech executives do. Fifty-three percent of dealmakers said having a partner with an established regulatory footprint was key; 47% said gaining a partner with market credibility was important; and 42% valued the additional access fintech firms could gain to customers in new geographies. “Fintech companies need to have clients at a regional level,” said a partner at a diversified alternative asset manager. “Partnering with a bank will give them access to a particular region and the clients within that region.”

In terms of risks and challenges, the focus of investors lies in the technical complexity banks face in integrating fintech functions (63%) and possible legal or regulatory issues (37%), as well as the difficulty in hiring qualified personnel (37%). For fintech companies, dealmakers expressed the most concern about similar issues—possible regulatory complications (63%) and the overhead involved in integrating fintech functions with banks (58%).

A managing director at one mid-market investment bank emphasized that legal issues are pervasive in financial services and therefore need careful handling in any bank-fintech collaboration. “There are voluminous regulations imposed on the financial and banking sectors, and these have to be dealt with at every point of business,” he said. “Apart from this, when data have to be integrated, there can be technical complexities that arise due to differences in the bank and fintech systems.”


As the financial industry evolves with new uses of technology, institutions must keep pace with advances like never before. In order to stay competitive, regional and community banks are using a wide variety of strategies, including the embrace of fintech. On the fintech side, many firms see clear advantages to tapping into the clients of these mid-sized and smaller banks, while dealmakers are playing matchmaker for the two sides.

Here are four key takeaways that should prove useful to everyone in the banking and fintech sectors when approaching the challenges that come with collaboration:

  • Banks are on board with fintech. Regional and community banks appreciate the benefits of cooperating with technology companies and are aware of the dangers to their business that come with missing out on innovation.
  • Data security remains a challenge. Both banks and fintech companies are highly sensitive to the ways in which data is shared and secured. This means extra attention must be paid to cybersecurity when the two sides collaborate—especially given the cultural mismatch that can exist between them.
  • Lower costs + a better brand = a win-win. For banks, working with a fintech firm can show their customers that they are evolving with the times, while also saving them on costs that come with things like physical bank branches. On the fintech side, companies can burnish their reputation in the marketplace by working with established financial institutions, while at the same time gaining increased access to customers.
  • Regulatory concerns remain paramount. For banks and fintech firms, structuring relationships that are regulatory compliant, including, if required, prior regulatory approval, is critical to ensuring success and the opportunity to change the way financial services are ultimately delivered.


Report provide by Manatt, Phelps & Phillips, LLP

About Manatt, Phelps & Phillips, LLP : “We are progressive and entrepreneurial compared to other major firms, and we are deeply committed to diversity, to public service, to involvement in the communities we serve and to excellence in all we do. We are proud to represent a sophisticated client base in a range of industries, including healthcare, financial services, entertainment, media and advertising, real estate, technology, energy and natural resources, consumer goods and services, and transportation.”


Brian Korn,bkorn@manatt.com,212.790.4510

Craig Miller,cmiller@manatt.com,415.291.7415

Barbara Polsky,bpolsky@manatt.com,310.312.4139