The Customer Effect

Why fintech can be friend or foe for values-based banks

  • Values-based banks push environmental, social and economic inclusion principles. Their future may depend on their ability to work with startups to evolve their technological offerings.
  • Partnerships with fintech companies are inevitable, bankers say, with fintech companies benefiting from the banks' distribution channels and the banks benefiting from startup innovation.
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Why fintech can be friend or foe for values-based banks

Ninety-three years after it was created as New York City’s first labor bank, Amalgamated Bank maintains its links to social causes. For example, through the bank’s Donate the Change initiative, it donates to a program that promotes clean energy. It claims to be the first bank in the U.S. to adopt a $15-per-hour minimum wage, and it offers customers sustainable investment options.

“We are the bank for the change-making community — people who spend their lives trying to make the world a better place to be,” said CEO Keith Mestrich.

Such values-based banks offer customers a differentiated experience. But the growth of financial technology that’s siphoned traffic away from physical branches may threaten the continuation of banks that focus on face-to-face interactions. On top of that, values-based banks must contend with threats all brick-and-mortar banks face, including innovations from fintech startups that are redefining the customer service experience.

But some values-based bankers actually see the disruption from financial technology firms as a way to help them survive.

First, a primer. Values-based banking can mean a lot of things. Amalgamated Bank belongs to the Global Alliance for Banking on Values, an international network of 43 institutions that support sustainable economic, social and environmental development. According to the Alliance, values-based banks embrace five principles: a focus on people, planet and prosperity; benefits to community; long-term relationships with clients and understanding of their economic activities; transparent and inclusive governance; and resilience. Values-based banks can include banks beyond Alliance members, including the 950 community development financial institutions operating in the U.S. to be values-based banks.

But since values-based banks tend to be smaller operations, they often lack the resources to develop the technology on their own, which makes a case for them to partner with startups.

Partnering means fintech companies and banks have to merge traditional and startup cultures and make sure their values are in sync. That’s a concern on the mind of Vancity, which is negotiating with fintech companies.

“We’re a values-based cooperative. We believe in certain principles around what we do, and we want to make sure the fintech companies we work with share those, which are building community, environmental sustainability,” said Jay-Ann Gilfoy, svp of digital solutions and business technology.

A recent partnership between a values-based bank and a fintech company centered around offering a credit card for customers who have difficulty getting credit. In March, Oakland, California-based Beneficial State Bank and fintech company LendUp entered a joint venture to expand distribution of the L Card, a Visa credit card designed by LendUp and issued by Beneficial State.

LendUp COO Vijesh Iyer said the partnership lets LendUp take advantage of Beneficial State Bank’s infrastructure, experience and offers access to large pools of capital at low interest rates. The bank, for its part, can access LendUp’s technology to serve its customers.

Others say that it’s not essential that values-based banks find fintech companies that share its values because the technology is being developed in the service of bigger social, economic or environmental goals.

“Banks use hundreds of vendors; it’s not possible that every one will share your values, but it’s important over time that you encourage them to take on the values set that you have,” Mestrich said.

Experts say that values-based banks have an edge in that they have a loyal customer base on which to grow from, helped by fintech.

“We see a need and demand for banks to differentiate,” said George Hodges, director of strategy and fintech innovation at PwC. “It’s about, ‘How can I offer a customer experience, products and service that give me differentiation in the marketplace and improve my competitive position?’ Values-based banks of various stripes offer opportunities for this.”

Photo credit: Amalgamated Bank

 

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