There’s something banks should know about working with tech startups: investors are telling them not to take your calls.
It’s nothing personal; founders are under pressure to spend their time building big, marquee deals. Working with smaller banks is problematic because it’s not typically efficient or scalable.
“The trap for startups is that it takes just as much time to work with a national or global bank and that can feel more efficient even though they might be a better fit for community banks,” says Todd Rovak, an advisor, investor and two-time startup founder. As Rovak explains, “it's very hard for small companies to find an efficient path to working with community banks because there are so many.”
This problem is part of what led Rovak and team to participate in the Alloy Labs Alliance’s Concept Lab with his newest venture, Carefull. Carefull builds digital services for financial caregivers that make it easier to support aging loved ones and make financial decisions. Rovak says his product is a remarkable fit for community banks, which are relationship-driven and typically have an aging customer base.
By joining the Concept Lab, the Carefull team was able to work with several financial institutions at once to explore partnership development and build the business case to support it.
For banks, the Concept Lab provides the opportunity to connect with vetted startups that they might not have access to otherwise. They’re also able to tap into new products and services — truly differentiated offerings that, often, have never been sold into banks before.
Peter Lee was attracted to the work Carefull was doing in the Concept Lab immediately. Lee is the SVP and chief information officer for The Cooperative Bank (TCB), a $483 million asset bank based in Roslindale, Massachusetts.
TCB isn’t a particularly tech-forward bank — one of the innovations it’s most proud of was adding a mail slot to the bank’s vestibule so customers could still do business in person in the throes of the Covid-19 pandemic.
But a lack of technology utilization doesn’t make the bank any less innovative. TCB follows three tenets that make it an attractive partner for startups and enable it to get deals across the finish line.
1. Know thyself
Fintech pundits like to give banks a hard time for relying on the refrain that their “people” or “customer relationships” are a competitive advantage. But in this case, TCB’s community ties were a true source of strength.
TCB is acutely aware that it serves an aging customer base. Because of this, its leaders have spent time cultivating relationships that allow them to better understand the issues older Americans face. The bank regularly speaks with professionals such as elder law and trust attorneys. And TCB’s president and CEO, John Battaglia, sits on the board of an elder care organization.
Having these strategic relationships give TCB two key advantages. First, TCB has a head start on understanding the experiences of older customers that Carefull was also trying to address. Second, their community relationships give the bank a broad outlook on ways they might leverage new partnerships beyond the bank’s existing base. That makes every new deal more attractive by an order of magnitude.
2. Give it room to breathe
One of the fastest ways to kill innovation is jumping to discussions about ROI too soon.
When evaluating established bank tech — things like account opening solutions or digital lending platforms — it’s fine to go straight to the numbers. There are enough reference customers who are all using the product in essentially the same way, and those uses are tied to traditional performance metrics. But innovation is inherently different.
A potential startup partner will have a solution built on solid tech, but the fun and upside of working with newer companies is the possibility of building new use cases, fee structures, customizations, and implementation pathways. Because of all the options at play, calculating ROI may not be possible or appropriate in the early stages of discovery.
What’s more, requiring up-front ROI analyses can prevent banks from pursuing projects that have important benefits to their customers, but no immediately obvious path to monetization. This was an issue for some participants in the early Concept Lab discussions with Carefull.
Carefull uses artificial intelligence to scan bank transaction records looking for signs of cognitive decline, elder abuse, and fraud. The benefits of offering the tool to customers were clear, but some balked at the prospect of inking a deal when they couldn’t prove it would add to the bank’s bottom line.
In order to work with Carefull, TCB devised a five-month pilot program based, in part, on the hypothesis that it would support asset retention at the bank. The idea was that by bringing older clients’ family members into the financial decision making process through Carefull, the bank would be able to build relationships with the next generation. This would improve the odds of younger folks keeping their loved ones’ assets with the bank after they passed away.
But that kind of long term result is impossible to measure in a five-month pilot. Even if it were, TCB didn’t have a way to measure asset retention. So the parties got creative and decided that developing a metric for measuring asset retention would be one of the key performance indicators Carefull would be held to as part of the pilot. That way the bank would gain a valuable tool for measuring its own performance regardless of the pilot outcome.
3. Right people + Right time = momentum
Another surefire way to squash an innovative new partnership is having too many cooks in the kitchen.
A lot of people believe that a project needs one hundred percent buy-in from everyone at the bank on Day 1 in order to be successful. But that is too high a hurdle to clear when you’re putting together innovative partnerships that require deep thinking and research.
At TCB, Lee took the process of developing the partnership with Carefull one step at a time. In initial partnership calls, Lee spent valuable time talking about aging with the experts from Carefull and vetting the company’s tech. Once Lee was satisfied that the project had legs, he pitched the concept to just three key players at the bank in marketing, retail, and risk. Lee asked them to poke holes in the concept, and that’s how they started to build momentum.
Once the project had a head of steam, Lee pitched the idea to CEO John Battaglia. By that time, Lee had a fleshed out idea for the partnership and support from key areas of the bank. Battaglia was enthusiastic about the idea and the opportunities it provided to leverage the bank’s existing network as a competitive advantage. “That's when the creative juices started flowing,” Lee says, “and we started building on top of that.”
As of this writing, TCB and Carefull are mid-way through their initial pilot program. However the experiment turns out, Lee is proud that his bank is taking action to protect and improve the financial standing of the bank’s older customers.
“It’s a pilot, so the risk is going to be low in terms of the compliance and financial risk,” Lee reflects. “And then we landed on opportunity risk. We asked what the risks of doing nothing at all were. That’s when we realized the benefits outweigh the risk. Because, even if we fail, we're trying to solve an existential problem. We are trying to do something about it.”