Community Banks Archives

November 22, 2024November 21, 2024

Peter Renton’s Fintech Forecast: Banking as a Service, Embedded Finance, and the Future of Open Banking

In the ever-evolving world of fintech and open banking, staying ahead of the curve is crucial. Few understand this better than Peter Renton. He is the CEO and founder of Renton & Co., a fintech consulting firm specializing in media, thought leadership, and event support. Renton is the former chairman and co-founder of Fintech Nexus (formerly LendIt Fintech). He has been out in the lead of fintech innovation for over a decade. His work has shaped the industry during this time.

In today’s episode of the Tearsheet podcast, Renton shared his insights on the current state of fintech. He shares his insights on where he sees the industry heading. Renton has a keen understanding of the fintech sector. His insights provide valuable guidance for established companies and newcomers in the industry.

“Without doubt, the most interesting space in fintech in 2024 is the banking as a service space,” Renton states. “Because of the way the banking system in this country is structured, we need banking as a service. And it’s not going away.”

The evolution of fintech events

Renton’s journey in the fintech world was punctuated with the creation of LendIt. It is a conference that grew from a small gathering of 350 people to a major industry event attracting thousands of attendees. As the fintech landscape evolved, so did the event. It expanded its focus from peer-to-peer lending to encompass broader fintech topics and companies.

“We expanded beyond lending and started it in 2017 and got going in 2018/2019, where we became a real fintech event,” Renton explains. This evolution mirrors the broader changes in the fintech industry. These include specialized lending platforms to comprehensive financial services providers.

The changing face of fintech conferences

Large-scale events like Money 2020 and Fintech Meetup still attract many attendees. Renton observes a rising trend of smaller, more specialized events organized by fintech companies themselves. “What you’re seeing in the event space is more and more companies doing their own small events,” he observes. These specialized gatherings allow companies to showcase thought leadership. They help to engage with their target audience.

Opportunities in Banking-as-a-Service and Embedded Finance

Renton sees significant potential in the banking-as-a-service (BaaS) sector, despite recent challenges. He believes that new regulations will provide clarity and stability. This will create opportunities for community banks. As a result, they will be able to expand their reach through BaaS offerings.

“If you want to grow your community bank, it’s hard to do that geographically now,” Renton explains. “But if you open up a BaaS line of business, there are ways you can grow your bank.”

Embedded finance is closely related to BaaS. It is another area Renton highlights as ripe for innovation. He points to companies like Pipe bringing fintech solutions to non-financial businesses, particularly in the vertical SaaS space.

The promise of Open Banking

Looking ahead, Renton is particularly excited about the potential of open banking. With the anticipated release of new CFPB rules on open banking, he foresees a wave of innovation.

“Open banking… is going to be a moment in time, but then that’s going to be in place and people are going to understand the rules of the road,” Renton predicts. “I think there’s a massive opportunity once that gets going. And when all the data, when your data becomes yours and it becomes more portable. There’s going to be a wave of new fintech companies that are going to use that and take advantage of that.”

The big ideas for Open Banking and Embedded Finance

There is a need for banking-as-a-service evolution. Renton asserts, “We need banking as a service. And it’s not going away.” He highlights the ongoing importance of BaaS in the fintech ecosystem.
Renton highlights the rise of specialized events. “What you’re seeing in the event space is more and more companies doing their small events,” Renton notes. He points to a shift in how fintech companies engage with their audiences.
He observes a growth trend in embedded finance opportunities. “If you’re a vertical SaaS company today and you’re not making revenue from payments and revenue from lending, you are behind the curve,” Renton warns. emphasizing the growing importance of embedded finance.
Renton underscores the potential of community banks. He explains, “If you want to grow your community bank, it’s really hard to do that geographically now.” He suggests BaaS as a growth strategy for smaller banks.
There is a rise in open banking innovation. “I think there’s a massive opportunity once [open banking] gets going,” Renton predicts. He anticipates a new wave of fintech innovation driven by data portability.

Listen to the full episode

Tearsheet Podcast · Peter Renton’s Fintech Forecast: Banking as a Service, Embedded Finance, and the Future of Open Banking

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Resources Mentioned

Fintech Nexus (formerly LendIt Fintech)

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September 5, 2024December 6, 2024

‘Banks use about 35% of their available technology, and we didn’t want to be that bank’: Craft Bank CEO, Ross Mynatt, on evolving tech preferences among community banks

Hey all, I’m Sara Khairi, your host for this episode and a reporter at Tearsheet. If you’ve been tuning into the Tearsheet Podcast, you’ve likely been enjoying the insights brought to you by Zack Miller, our editor-in-chief and the original voice of the show. While Zack remains the heartbeat of the Tearsheet Podcast, I’m excited to jump into the podcasting mix and bring you some episodes of my own. Expect to hear a bit more from me alongside Zack. I hope you find my chats here just as engaging as the stories I write including the weekly 10Q Newsletter for our pro-subscribers. Catch you on the other side!

For my very first episode, I decided to step outside the frenetic pace of the Big Apple and dive into the lesser-known banking scene in other states. Community banks have weathered a storm of challenges in recent years, including macroeconomic pressures and the uncertainty following three regional bank failures in 2023. In particular, young community banks launched during the peak of Covid-19 have had to contend with additional complexities due to their timing.

These community banks may operate on a smaller scale, but their ambitions rival those of Wall Street giants. As the digital wave sweeps across the globe, these banks are not just staying in the game — they’re hustling to keep pace and stay relevant by adopting emerging technologies.

One example is Atlanta’s Craft Bank, which opened its doors in 2020, right when the world was facing a pandemic. Primarily a commercial bank with a business-centric focus, Craft Bank currently operates with a team of 19 employees and manages total assets of $250 million.

Ross Mynatt, CEO of Craft Bank, joins us to discuss his journey as a first-time CEO, the choice of Jack Henry as their core tech partner, and the strategies behind Craft Bank’s $250 million asset growth at a time when most smaller institutions were struggling just to stay afloat.

Throughout our talk, it becomes evident that although 92% of banks aim to maintain or elevate their technology spending in 2024, community banks and large financial institutions take markedly different approaches when it comes to investing, forming partnerships, and selecting technology providers. Ross also discusses whether community banks could potentially leverage technology more effectively than their larger peers.

This first episode kicks off a three-part series exploring the tech and partnership strategies of three emerging community banks. First up: Craft Bank – its origin and its tech evolution. Let’s dive in!

The key takeaways

Growth drivers for Craft Bank: Ross credits the bank’s growth to a mix of good fortune, a seasoned team with strong connections, and favorable market conditions in Atlanta, where no new bank had opened in 15 years, and the number of community banks had significantly declined. He notes that they raised capital at the pandemic’s peak, which seemed like a daunting endeavor back then but turned out to be well-timed as interest rates were at historic lows.

“We’re right at 250 million in total assets or as our Chief Lending Officer likes to call it, a quarter of a billion dollars, we are 90% a commercial bank,” shares Ross.

What starting a de novo bank is like, and why not just acquire one? Ross discusses the decision to start a de novo bank rather than acquire an existing one, highlighting the importance of cultural fit and avoiding legacy issues. He also highlights the significance behind the name ‘Craft’ and how it led to the determination to start from the ground up.

“We knew that we could build it from scratch and it would be ours, as opposed to going out and buying an existing bank or an existing charter where there are some legacy issues, perhaps there may be some loans that you might not have booked otherwise, or maybe it’s not a cultural fit – and culture is very important to us,” according to Ross.

Deciding on tech providers: Craft Bank has invested in technology, choosing Jack Henry as its core software provider. The bank intentionally selected tech solutions it knew would be used well, avoiding the pitfall of investing in tools that go underutilized.

Ross explains that his bank’s approach to investing in software involved everyone agreeing with confidence: “Yes, we will use this”. This consensus was driven by a caution sparked by a data point Ross came across while they were organizing. “On average, banks use about 35% of their available technology, and we didn’t want to be that bank,” notes Ross.

He underscores the value of cultural synergy in tech collaborations, too, sharing lessons learned from both successful and challenging encounters with partners.

Key qualities of good tech partners: Ross advocates for building personal relationships and a test-run approach to ensure compatibility with tech partners.

“I guess what I would encourage folks to think about is that before you sign up with a dance partner, I may try to do a test run. Let’s do a project together on a very limited, finite basis. Let’s see how it feels, what works, and what doesn’t work.”

Comparing tech partnerships – community banks and larger FIs: Ross contrasts Craft Bank’s approach with that of larger financial institutions, emphasizing the advantage of personal relationships in smaller banks. He acknowledges that while a community bank may not have the same resources as larger institutions, it can leverage personal relationships more effectively.

“Now I’m not going to tell you I’ve got an advantage over Jamie Dimon, but I will say that we can leverage [personal] relationships probably a lot more effectively than JPMorgan,” says Ross.