Frank Sanchez has been competing in the core banking technology space for 35 years. He’s back with Finxact, a SaaS core banking system that’s gunning for the big providers. Frank joins us on the show to talk about how modern banking requirements have evolved throughout his career and what Finxact is doing to build an ecosystem of interconnected software for its bank and credit union clients.
Off a recent $30 million fundraising round where the American Bankers Association, Accenture Ventures, and SunTrust Bank participated, Frank describes what model driven architecture is and how it should help Finxact clients deploy customizations quickly and effectively.
Getting started in core banking
When I started with my brother and Dad, I think I hired my entire fraternity in college. In the early 1980s, we addressed recent regulation changes as banks started encroaching on each others’ products and customer bases. We thought we could develop a core system — a plant floor for a bank — that would enable financial institutions to compete with each other.
We built a core banking system and went public in 1997. The company became very successful overseas as banking systems westernized. As much as we thought we were a tech company, we were also an infrastructure company and brought in to areas and geographies that were experiencing significant changes in banking. Same thing happened in the US during the first wave of Internet banks.
We were acquired in 2003 by FIS and I came down to run their large bank business — what they called Enterprise Banking.
The changing banking field post-2010
The banking industry itself was coming out a major recession of 2008. They began to see future growth. Silicon Valley startups also started encroaching on banking territory, leveraging large customer bases to move into banking services and payments.
We continue to see more and more non-banking intermediaries in the banking marketplace and banks reacting to that. We also see the transition from ATM and branches to some Internet and a lot of mobile banking in terms of how individuals and businesses expect to interact with their banking providers.
Where banks see future competition
Banks are absolutely worried. Banks are seeing the mitigation of the benefits of location, physical footprint and brand. The barrier to entry has been lowered so that anyone with a good interface can start to engage. I think we’re in the middle of a huge battle for customers.
Banks are concerned with challenger banks coming out of larger banks. They’re looking at new customer segments with new products and they’re absolutely a threat. Banks are also concerned with fintech and Apple, Facebook, and Google. They’re all looking to carve into the payments space and from there, they’ll probably want to own the payment account. All banks feel the pressure.
On top of that, community and regional banks feel that they can’t compete with the money center banks on the technology front. One of the reasons we came into the market is that these banks haven’t been provided a level playing field as core providers haven’t kept pace with the changes at large financial institutions. We’re trying to make sure there’s a fair fight for everybody.
Launching Finxact and raising investment
We started at the end of 2016 as I raised $12 million. We went from a PowerPoint presentation to start building a product. We went to our first customer at LiveOak Bank in Wilmington, North Carolina towards the end of 2018. We have a competitive offering for the US banking market.
We raised $30 million at the beginning of 2019 and had the participation of the American Bankers Association, Accenture Ventures and early investors. We raised the money to be able to have the bandwidth to go to market and engage multiple projects at once. Software is never done — we want to go from MVP to further enhancement of our platform with economic and technical advantages.
When we raised capital, the amount of effort, capital and time to build a complete end to end banking solution is extraordinary. There’s substantial execution risk. I decided early to focus on one thing and do it really well. We focus on core banking.
That way, we can work with other fintech firms that are very good at other things. Together, we enter the market with an end to end solution that is best of breed up and down the stack — from the system of record to the channel solutions to business intelligence and to fraud. Through APIs, we can connect these things easily, plug and play. Our customers can choose from the ecosystem which components are relevant to their businesses and they can select in and out across multiple vendors. Providing competition and options makes sense to our customers. That’s in contrast to existing providers that offer their own end-to-end stack.