The Next Frontier
from an unexpected partner—fintech startups.
Raj Bhaskar needed more numbers. His livelihood depended on it. It was the mid-2000s, and he was heading VisualHomes, a real estate software startup that provided financials and compliance solutions to affordable housing agencies across North America. Bhaskar wanted real-time financials so he could implement real-time business strategies. And while his internal controller could deliver the numbers to him a week after the month closed—pretty speedy in the business world then—that was still too late for Bhaskar. “I would run around to find certain analytics during the month so I could make key decisions,” he said.
Even at a time when more and more people were foregoing traditional employment for entrepreneurial pursuits, there was a gap in the market for a product that could provide this kind of vital, up-to-the-minute information for startups and freelancers. So the frustrated CEO decided to fill it himself. Bhaskar cofounded Hurdlr, a D.C.-based business whose application programming interface (API) and mobile app provide immediate financial, tax and performance insights for people who are their own boss. The app connects the dots between a user’s bank account, credit cards, business expenses and other financial puzzle pieces, providing on-demand data needed for critical business decisions.
“We wanted to create something to help people thrive in the new 1099 economy,” Bhaskar said. According to Hurdlr, the app has already helped users track $6 billion in finances and save $250 million in taxes to date.
Startups like Hurdlr that develop financial technology, or fintech, are disrupting the financial services industry in fundamental ways—part of a groundswell that has been years in the making. Many traditional financial institutions have begun to embrace working with fintechs to deliver new experiences and help create lasting customer relationships. This is because the proliferation of mobile phones and digital technologies are fundamentally shifting what users want from their financial institutions. These changing consumer expectations have driven the fintech boom, spurring the creation of everything from online chatbots to peer-to-peer money transfer apps.
Analysts say demand for emerging technologies within the fintech sector continues to mount. For traditional banking institutions, the trend is a pointed message: change, and fast, or risk marginalization. Many are choosing the former, naturally. And although some executives still worry that part of their business is at risk due to the current fintech revolution, the most innovation-minded banks have embraced it.
Making bold moves
Wells Fargo, the 166-year-old bank, is a legacy player that made a decision early on to commit to investing in early-stage fintech enterprises. In 2014, Wells Fargo launched its Startup Accelerator program with the aim of advancing startups that are innovating for enterprise customers, both inside and outside the financial industry. Companies selected for the six-month program receive potential investment of up to $1 million and get a chance to test and refine their products with guidance from Wells Fargo business and tech leaders. They also gain access to a network of business mentors, venture capitalists and enterprise executives.
Bipin Sahni, head of innovation research and development for Wells Fargo’s Innovation Group, leads the accelerator. “You cannot build a future just being in your own little world,” he said of why he believes the program is necessary. “There are so many smart people outside thinking about a lot of cool ideas.”
Nineteen companies working on everything from data analytics and payments to artificial intelligence have gone through the accelerator so far. Bhaskar’s Hurdlr is one of them. Wells Fargo had initially reached out to the CEO to better understand the benefits of Hurdlr’s API to help support the bank’s own app. But as the collaboration developed, the startup was encouraged to join the accelerator. By doing so, Bhaskar said they’ve been able to get Hurdlr’s technology bank-grade and bank-ready.
“Now we’re ready to work with almost any Fortune 500 bank,” he noted. “That's the big thing. Joining the accelerator positions us to have a much bigger impact within the industry and on the 1099 economy.”
A two-way street
SimSpace, a Boston-area cybersecurity software firm, has also benefited from working with Wells Fargo, both within and outside of the accelerator program. SimSpace’s Cyber Range software suite allows companies to clone their production network for realistic cyber defense training and assessment in a secure, simulated environment. So, for example, if a bank wanted to test out new cybersecurity products, it could do so safely using SimSpace software.
The relationship with Wells Fargo “drives us to perform at our peak,” said CEO and cofounder William “Hutch” Hutchison, a former Air Force fighter pilot who also worked with the U.S. Cyber Command.
It goes both ways, noted Sahni. While the accelerator program helps startups mature faster and validate their products, the innovations that come out of it can also add value to the services the bank can offer its clients, thereby increasing customer retention. “I’ll be very blunt,” he admitted, “being a bank doesn’t mean you can do everything. If we stop learning, the game is over."
These types of relationships are at the heart of an evolving financial sector. According to a recent industry survey, collaboration among banks with fintech companies rose from 42 percent in 2016 to 54 percent the following year. In addition, 82 percent of financial institutions expect to increase partnerships with fintech companies over the next three to five years. And it’s easy to see why. For traditional banks, this outreach offers an opportunity to tap into the new opportunities that innovation enables. Mobile money services alone could evolve to support trillions of dollars in payments.”
Put simply, the collaboration creates a win-win for everyone—banks, fintech firms, and most importantly, the customer. “The world is changing at such a fast pace and the consumer perspective is evolving,” said Sahni. “We want to make banking cool again. That's how I look at it."