Is fintech’s final frontier the last chapter for banks?

A provocative new essay from Andreessen Horowitz General Partner Alex Rampell suggests that the way governments have directly intervened to provide financial support to citizens and businesses during the COVID-19 crisis could point the way to a new banking relationship between “people” and “We, the People” – with fintechs playing a starring role.

Rampell’s theme is disintermediation, which he calls the Internet’s greatest legacy. By enabling individuals to get access to the things they want – products, services, information – without a series of (often) fee-charging and rent-seeking gatekeepers, disintermediation has empowered users and rewarded those institutions that are best able to respond – quicker, safer, more accurately, and more completely – to customer demand.

The spectacle of governments – particularly the U.S. government – attempting to provide COVID-19 relief funding was for Rampell a dramatic example of what can happen when effective gatekeepers are NOT present. Because the U.S. government has few options to provide quick financing to its citizens and their businesses, a host of intermediaries were enlisted to help get relief money from Washington, D.C. to the American communities where it was needed. This, as we have since learned, has been time-consuming. Unfortunately, in some instances, it has also appeared to be wasteful in directing some funds to areas where none were needed and, in instances where support was needed, not distributing available funding, at all.

As Rampell put it: “The reason why things like the Paycheck Protection Program (PPP) have been such a disaster , or that stimulus checks still have to be mailed in 2021, is that there is no ‘direct connection’ between consumers and government for money. The government is the mainframe for money, but there’s not really an Expedia yet.”

And Rampell doesn’t see the point in waiting around for one, either. Instead, he asks why not use what the government already has access to, namely, social security accounts, and treat them like bank accounts?

“With an SSN as a permanent financial account with the government,” he writes, “the government could deposit money directly to consumers, or allow person-to-person transfers, or pay overnight interest on deposits directly.” Rampell imagines not only the ease of paying taxes (or receiving tax refunds) under such a regime, but also how much more efficient a government relief program might be with this SSN 2.0 approach.

Rampell is quick to insist that he is not interested in nationalized banking or what he called “postal banking” (generally, the idea of turning post offices into bank branches). Instead he argues that, in some instances, incumbent financial institutions are playing no more than a filtering role when it comes to facilitating savings in a country. And while this filtering has a role in modern capitalist economies, it is not exclusive and there is a good argument against treating legacy financial institutions as if it is.

“Fintech—’apps for money’—represents the most powerful tool that governments have to make their monetary services available directly to their own citizens,” Rampell writes, “helping accomplish monetary and policy goals and benefiting consumers equally.”

There’s more to Rampell’s discussion – including a key caveat on the role of private capital and risk-taking in such a system. But in a world that is getting increasingly comfortable with government playing an active role in the economy, a disintermediation that brings citizens closer to the government that rules in their name may be an idea whose time has arrived.

What is the impact of financial technology on what some might suggest is the most important “vertical” of all? With churches and other religious institutions joining other organizations in their embrace of technology, we wanted to take a look at how trends toward digitization – especially given the onset of the global health crisis – are impacting the way that faith institutions support and engage with their communities and congregations.

To learn more, we connected with Aaron Senneff, Chief Technology Officer with Pushpay. Founded in 2011 and headquartered in Redmond, Washington, Pushpay offers engagement and mobile commerce solutions, including payment solutions, to faith, non-profit, and educational organizations.

Finovate: With more than 10,500 customers and a total processing volume of $5 billion, Pushpay operates in a fascinating space within fintech: providing donor management and engagement solutions for faith communities. Can you tell us a little about the idea behind launching the company and the problem Pushpay solves for its customers?

Aaron Senneff: Pushpay was formed on the idea that church giving should be easier. When the company was founded, e-commerce through mobile devices and app was accelerating. You could order and pay for your coffee through the phone.

At the same time, churches were accepting donations via cash, check, and passing offering plates as they had done for years. Our founders saw an opportunity to use technology to help make giving easier for church members and make it much easier for church staff to track, manage, and encourage generosity through digital tools.

Today, Pushpay’s digital systems have built on the early success of digital giving, and expanded into donor development, custom mobile applications for churches and church management systems – a full complement of tools that aid churches. As our original founder was known to say, “Everything we do is driven by our purpose to bring people together by strengthening community, connection, and belonging.”

Finovate: How widely are services such as Pushpay used by churches and other religious institutions in the U.S.? Is this a rapidly growing opportunity for you?

Senneff: Many large, progressive churches use technology to their advantage today. It’s not uncommon for a church to use a wide variety of digital tools now, from streaming technology, to email marketing or CRM tools, to sophisticated custom websites. Many of those churches have added digital giving to their arsenal of tools, especially in the last five years. Particularly, large U.S. protestant churches – the so-called “mega-churches” – have significantly embraced the concept of digital giving.

The adoption of digital giving follows the adoption curve you might expect from other technologies. There are early adopters, early majority, late majority and laggards – churches span across all of these categories. While we’ve seen a lot of adoption in churches to date, we still see a number of churches and faith-based organizations using antiquated tools and processes to manage their giving. In addition, among our current customer base, the suite of tools is ever maturing, growing, and becoming more capable. There’s a great deal of opportunity to utilize those new capabilities, even for churches who adopted digital giving tools early.

Finovate: Who are Pushpay’s primary customers? Is this something that churches of varying congregation sizes can use – or is it mostly for larger institutions? Is there much geographic variation in terms of who uses Pushpay’s solutions?

Senneff: Pushpay serves churches of all types in the U.S. We have customers that rage from 20,000 in weekly attendance to less than 100, and every type of church in between. We have found that larger, progressive churches – the kinds of churches that might operate multiple campuses, have staff dedicated to digital technology, that have processes, systems and structures in place that support their complex and growing organizations – are often the first to adopt new technology and digital tools like Pushpay. However, we see very active interest in our tools across the spectrum of churches.

We’ve also seen an acceleration of adoption across the market as a result of COVID, as churches across the U.S. closed their doors, but still needed a way to engage their membership. The digital tools we provide can give churches a means to continue to communicate and engage with their membership, even while physical participation is on pause.

Finovate: You recently launched ChurchStaq, an end-to-end engagement solutions platform that includes a church management system. I think our readers would be especially interested to hear about the giving and donor management functionalities of the platform. Can you talk a little about this?

Senneff: ChurchStaq is a full suite of tools that enables churches to engage with their people on all levels. It includes a Church Management System – a back office system not unlike a CRM but customized for church staff – a customized mobile app that a church can deploy to their community, and a digital giving platform. These three core capabilities are combined into one product offer that work together to help churches know, grow and keep their people.

The strength of this platform isn’t the standalone donor management system or app or ChMS, but the combination of them all. A really good example of this is our suite of donor development tools. In addition to facilitating online giving, donor management system has some sophisticated reporting that allows church staff to easily identify changes in giving patterns among their community. A church might, for example, have a family that is experiencing financial distress as a result of a job loss and that is surfacing in their giving stopping or becoming more erratic.

The donor management system can easily identify those people who may be in need of care. From that point, the ChMS system can take those individuals and put them in automated workflows for the church that kick off a process of care that is designed by the church. Whether it’s assigning a staff member to call them and check in, sending them an encouraging email, or texting them with some resources, etc. They can also use the church app to push out content or push notifications to specific groups of people. The tools really work powerfully together to help churches big and small care for their people individually.

Finovate: How has COVID-19 impacted your customers? Have you seen the same eagerness to embrace new technologies as we’ve seen in among other institutions and organizations? Has Pushpay played a role in helping its customers manage the crisis?

Senneff: COVID has had a mammoth impact on U.S. churches. Many churches across the nation have been closed to physical attendance since early March. Even as they begin to re-open, we see hybrid models that combine in person and online attendance, and many church-goers and families continue to participate on-line. Digital tools like Pushpay’s have been vital for some churches. It’s allowed those who may have historically relied on physical engagements to connect with people – like written Connection Cards, booths in the lobby, new attendees meeting or classes – to replace those physical engagements with digital ones, such as invitations to give, to join groups, to interact with staff or see the churches calendar of events from a mobile app.

Many churches who were already investing in online tools actually saw attendance via viewership rise during COVID over their historic physical attendance, and the digital tools that Pushpay provides can help churches better engage with those individuals.

Finovate: What can we expect from Pushpay over the balance of 2020 and into next year?

Senneff: We continue to invest significantly in our entire product family: our digital giving platform, our church management systems, and our custom mobile apps. We’ll continue to move each of these products’ features and capabilities forward individually, but we have a significant emphasis this year and beyond on providing a seamless, full-suite solution where churches can gain a sharp 360-degree view of their people, which they can rely on to help know, grow, and keep their people.

A recent analysis by Brookings looked how technology, platform regulation, and China policy may be impacted by the policies of a future Joe Biden/Kamala Harris administration should President Trump fail to be re-elected. As might be expected, the review pointed to greater regulation – including anti-bias and worker rights advocacy – as one likely outcome if a new administration takes office next year.

Also interesting are the ways that the Brookings analysts – and others – see a Biden/Harris administration as an enabler of technological advancement and innovation, especially in the area of technology infrastructure. This is also one of the ways where a Biden/Harris administration could be most constructive for fintech.

As the Brookings analysts point out, the fact that the Democratic vice presidential nominee is a Senator from California (who represents Silicon Valley) suggests that there might be greater insight into the issues and challenges of the 21st century technology industry than exists in the current administration.

This likely cuts both ways. A Democratic administration would likely be more supportive of immigration policies that would enable tech firms to keep and attract more talent – as well as for international talent to decide to innovate and build in the U.S. rather than in Europe or Asia. This would benefit fintechs across the board as much as it would benefit technology companies generally.

At the same, there’s no doubt that regulation – especially financial regulation – would likely see a resurgence. While many are wondering about the prospects of an Obamacare 2.0 in a Biden/Harris administration, fewer are discussing the possibility of a CPFB 2.0 and the likelihood of a renewed attention on fintech’s lenders in particular. I think that the CPFB’s creator, Massachusetts Senator Elizabeth Warren, would probably not be headed to Treasury in the event the American people put Joe Biden in the White House, but her influence on the resurrection of the agency would be powerful.

At the same time, it is worth remembering that Joe Biden has a far different historical relationship to the world of finance, if not fintech, compared to Senator Warren. As a multi-decade senator of Delaware, Biden has been criticized – including by Senator Warren – for his “energetic work on behalf of the credit card companies.” A 19th century Delaware law allows any American company to incorporate in the state and not a few firms over the years have taken advantage of this to “place their profits in Delaware-based holding companies to avoid paying taxes in the places where they actually operate” as Tim Murphy described in Mother Jones last year.

It may be too much to suggest that the First 100 Days of a Biden Administration would feature a tug-of-war between the new president and Warren over the appropriate attitude toward consumer lending and credit. But the presence of both does suggest that any policy that emerges could be more moderate than might otherwise seem.

Photo by Element5 Digital from Pexels

In the middle of the first month of the year, one of the biggest names in the payments business acquired one of the most innovative fintech infrastructure companies in the industry, in a deal valued at more than $5 billion.

Six months later, Visa’s acquisition of Plaid almost seems like news from another time.

The arrival of the coronavirus to virtually every corner of the globe – and the worldwide response to the killing of a black man in police custody in the U.S. – have sent shock waves through the fintech industry – as they have the rest of the world. Now, at the same time, fintech is engaged in both the struggle to help businesses and consumers cope with the closures and shelter-in-place restrictions of the COVID-19 crisis, as well as the challenge of correcting decades of discriminatory practices against African Americans and members of other underrepresented ethnic groups. As we approach the middle of 2020, fintech is facing different kind of crisis that, while not of its own making, will require a response that is uniquely tailored to the world it operates in.

This is a world that is both heavily technical, relying on the latest innovations in machine learning, artificial intelligence, and distributed ledger technology, while simultaneously pledging to bring the benefits of 21st century financial services to the underbanked and underserved populations of both post-industrial and developing economies. This is a world that has grown tremendously through the contributions of people from diverse backgrounds, representing cultures from almost every corner of the globe. Yet, at the same time, it is a world that is still struggling to achieve true gender and ethnic diversity, particularly in the C-suite and in the boardroom.

There are many ways to value an industry: the quality of the goods it produces; the entertainment, education, or simple well-being its services provide; even just the degree of pure, gee-whiz innovation the industry may deliver, often seeming to grant us what we want even before we summon up the nerve to wish for it.

But as the fintech industry edges closer, inexorably, toward maturity, it now finds itself increasingly judged on the kind of criteria Corporate America – often to its own surprise and bewilderment – can find itself judged on from time to time. This is a judgement that has less to do with what Corporate America makes and sells, and more with who Corporate America is and what it values.

Both the global public health crisis and the renewed determination to fight racial inequality are providing fintech as an industry with an opportunity to show the world just what it’s made of. As we move into the second half of this historic year, I am hopeful and optimistic that fintech will rise to the challenge.

Photo by Suzy Hazelwood from Pexels

In the wake of the tragic killing of George Floyd at the hands of a Minneapolis police officer, people around the world are showing remarkable support for the cause of African American equality. From every corner of the globe, and in cities and towns across America, people from all walks of life are increasingly committed to making sure that the slogan “Black Lives Matter” evolves from being a mere rallying cry to a new reality for millions of black Americans.

With this in mind, we want to share again our thoughts on ethnic diversity in our industry, fintech, where we are in terms of inclusivity, and where we need to go.

When the discussion of diversity in the tech world comes up, the conversation is typically oriented around gender diversity. But the call for greater inclusion in the tech world is not limited to gender; diversity along ethnic lines is also a goal that technology companies have increasingly begun to strive toward.

Perhaps the international nature of many technology enterprises, with tech entrepreneurs and tech talent truly arriving in Silicon Valley from all corners of the globe, serves to mask the relatively small number of tech firms in general, and fintech firms, in specific, that are run by Americans who are ethnic minorities. Indeed, an online search for “African Americans in fintech,” for example, is almost as likely to produce entrepreneurs from Nairobi, Kenya as from Newark, New Jersey.

Importantly, there are tech firms that have won admiration for the diversity of their teams. Slack, for example, was widely praised for its diversity report which, released in 2017, showed that the company had achieved better gender diversity than its Silicon Valley peers. The report also revealed that Slack’s workforce had as much as 3x the number of underrepresented minorities (African American, Latino/Hispanic, and Native American) as its peers. An Atlantic article from 2018 pointed out that where Slack had minorities in 13% of all technical positions and 6% in leadership positions, companies like Google and Facebook had less than 4% of their technical positions filled by underrepresented minorities.

How has fintech fared when it comes to ethnic diversity in its technical and leadership ranks? Finovate has hosted a handful of fintech companies with African American leadership over the years – Clinc and its CEO and co-founder Jason Mars, DarcMatter and its COO and co-founder Natasha Bansgopaul, are two that come to mind. And the industry writ large may have more founders of color than many think: Forbes celebrated the release of its Forbes Fintech 50 roster last year by featuring Ryan Williams, the young, African American CEO of mortgagetech firm Cadre on the magazine’s cover. And venture capital firms like Backstage Capital have made investment in startups with founders of color – as well as women and members of the LGBT community – a priority.

Nevertheless, even as the number of African American and Latino/Hispanic tech founders and leaders has grown, it remains true that there are fewer African American and Latino/Hispanic founders and CEOs in fintech relative to other areas of technology, including education and health-related tech fields.

One of the biggest problems that companies lacking in diversity can face is that it can make them less capable of responding to the needs of diverse markets. Fintech analyst Mary Wisniewski wondered in a 2018 American Banker article “Are black millennials a blind spot for fintech firms?” and noted that while millennials in general have developed a healthy skepticism toward banks, this wariness is all the more pronounced in young people from communities of color. Among the solutions offered are more minority-owned financial institutions, and an increased emphasis on financial literacy and wellness as an engagement strategy for younger minorities.

In this regard, fintechs like GRIND may become more well-known and popular. Launched last year and based in South Central Los Angeles where it caters to the local African American community, GRIND offers FDIC-insured debit accounts, a mobile banking app, and the ability to get paid two days earlier if they set up direct deposit with GRIND. Another example of this kind of company is Finhabits, a bilingual (Spanish/English) mobile investment platform launched by Carlos Garcia in 2015. Garcia, an MIT graduate with experience with Merrill Lynch and Galileo Investment Management, explained that the issue for Latino and Hispanic communities was not their ability to save, but their lack of familiarity with investing. “Our day-to-day money management is good, but planning for 15 years ahead is not” he said in a 2017 profile.

As fintech continues to diversify itself as an industry, one good note is that it appears that fintech may be helping alleviate some of the issues in financial services caused, in part, by a lack of diversity. A recent report from the FDIC on consumer-lending discrimination in the fintech era, for example, suggested that technology may be playing a positive role in reducing the discrimination in credit faced by Latino/Hispanic and African-American consumers in particular. The report specifically pointed to “new entry of fintech platforms” as well as digital improvements by incumbents for increasing competition and declining rate discrimination.