Temenos released in April its annual report[1] on the State of digital sales in banking. As I was reading some of the key findings reported by Jim Marous[2], I was struck by these observations:

More concerning is the reality that most of the high marks for digital sales continue to be garnered by only the largest organizations.

 Larger banks ($150B – $2,500B) not only have a financial and technological advantage, they benefit from a head start in the deployment of all digital account opening capabilities, allowing them to gain a share of mind advantage through media and word of mouth. 

 #AndTheIronyIs that technology was supposed to democratize banking not only for the end-customer but also for the smaller, less national, less international financial services provider. After all, fintech is by now overweight B2B providers. Remember it all started as a disruption, replacement to banking. Then it shifted to collaboration and partnerships with incumbents and as Jessica pointed out ‘Something’-as-a-service, the new fintech paradigm.

#AndTheIronyIs that despite the plethora of B2B unbundled fintech services out there, anything you can imagine as a service; the mid and smaller size banks remain overall behind. Of course, there is a variety of metrics and KPIs that one can use to measure their digital readiness. From mobile account opening, save and resume functionality, small business account opening, etc.

Digital transformation these days requires internal cultural and technological changes whose impact will be seen 3yrs down the road. That means that mid to small size incumbents remain at a disadvantage.

When I look at 11Pulse, the digital benchmarking offering of 11FS that allows clients to benchmark themselves against peers on onboarding, security, PFM, …; I wonder whether mid to small size banks are flocking to take advantage of this service and to find ways to catch up.

I guess the simplistic answer is that small to mid-size banks don’t have the guts and the budget to stick to such a 3yr plan.

For sure they don’t have any internal strategic funding mechanisms like Goldman Sachs has. Goldman’s Principal Strategic Investments group has made key investments in Kensho and Tradeweb and helped create Wall Street chat platform Symphony, and much more.

Neither do VCs fund the transformation of existing banks because they are only interested in high growth stories, which means investing in those that are building the picks and shovels.

The only such example I have found is Cross River Bank that Battery Ventures, Andreessen Horowitz and Ribbit Capital invested $28million in 3yrs ago[3] and recently another $100mil was announced by KKR. Cross River bank started by supporting fintech startups with loans – $2.4 billion in loans for companies like Affirm and Upstart in 2015 alone. Today it is more than a leading marketplace lender for fintech. It is one of the top go-to bank-fintech cooperation providers. Its customers include Circle, Best Egg, Coinbase, Rocket Loans, Stripe, Upstart, Affirm, and Transferwise. Just 2 weeks ago it Cross River bank acquired Seed, a small business banking company.  Seed is a 5yr old online banking company for small business  owners and freelancers.

`If a payments company wants to become a lender or a lending company wants to do payments, then they have the ability to do that on our rails,` says founder Gilles Gade to Techcrunch.

The question to VCs, CrossRiver bank, 11Pulse, and other remains:

It is either the large incumbents (my Sharks) or the aggressively VC funded Fintechs (my piranhas) that are benefiting from the variety of  `anything Fintech as a service`. What about the bulk in between?

[1] The report includes the Temenos proprietary ‘Digital Sales Readiness Matrix’.

[2] Banks Not Meeting Digital Sales Expectations

[3] Who`s building the Banking Smart pipes

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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